ON THE RECORD(4)

When Avista first spun out of DLJ Merchant Banking, you stayed on the advisory boards of DLJ Funds I, II and III. Are you still doing that?
Yes. When we left DLJ/Credit Suisse in July of 2005, Credit Suisse asked all of us to continue to help them manage the existing portfolio of DLJ Merchant Banking assets. And, in addition to asking us to help them do that, they also asked me to stay on the investment committee as co-chairman from July of 2005 until December 31 of this year. During the last 18 months, we did exit a number of businesses. However, there still are a number of investments left in funds II and III, and they've asked me to continue for another year on the investment committee of DLJ Funds II and III.

I was successful in basically taking three silos with me to Avista. So the same people are now doing the same kinds of deals, and frankly we're sourcing them in the same kinds of ways as we sourced them at DLJ

What is it like working as an independent firm now?
The three most successful industry silos at DLJ Merchant Banking, measured in terms of return on investment, were energy, healthcare and media. And I was successful in basically taking those three silos with me to Avista. So the same people are now doing the same kinds of deals, and frankly we're sourcing them in the same kinds of ways as we sourced them at DLJ. So, as for energy, healthcare and media, there really hasn't been much change. That's why I was so confident that Avista would be successful, because we had a proven track record of success over the last decade inside DLJ Merchant Banking. The big change from Credit Suisse is that we're more focused on three sectors, and we're more focused on North America as opposed to looking at everything and looking globally.

How do you go about sourcing your deals?
We've now done 11 transactions at Avista since we started and committed $850 million in our first year of operation. And eight of those 11 transactions were sourced on a proprietary basis through the network of relationships that our industry partners have. The other three deals were essentially limited or busted auctions.

Why exactly did you choose to spin out?
We did not choose to spin out. It's very important to understand that. Credit Suisse decided to change its strategy. We had grown into a big independent private equity business within an institution. And inevitable conflicts with leveraged corporate clients started to surface. And so Credit Suisse made a decision to pursue a much smaller, more co-investment oriented model, and they therefore approached me and said, “look, we're pursuing this different model. We understand you've built a bigger, more independent kind of business, why don't we split the team and we'll support you and provide resources for you and you can go out and start your own business.” And that relationship has worked terrifically. Credit Suisse is an investor in Avista as a limited partner, and we at Avista have continued to help manage the DLJ Merchant Banking funds to frankly great success for our investors.

You closed a big deal last month with the purchase of the Star Tribune. With digital media becoming such a big thing, there are certain arguments that newspapers are on the decline. So why invest in a newspaper?

Yes, newspaper readership has been in decline, and advertising revenues have been in decline. We believe that is moderating. And our long-term view is that there is great franchise value to a top-20 newspaper in a healthy market like Minneapolis. And it's a pretty high cash flow business. And so, consequently given the purchase price we paid, given the opportunities for growth and other avenues like the newspaper's internet business, we believe we've made a very attractive investment.

So is that part of the plan then to help grow the digital side?
Absolutely.