Venture capitalists acquire Pergament - Brief Article

Home Channel News, March 20, 2000 by John Caulfield

MELVILLE, N.Y. - Pergament Home Centers has its third owner in a decade. However, who that owner is remains a mystery.

Westdeutsche Landesbank Girozentrale, which owned the 33-store home improvement dealer for much of the last decade, has sold the company to a group of venture capitalists whom the bank described as having expertise in reviving retail companies that are struggling.

The bank did not identify the investors acquiring the company. Michael McWalters, a credit manager for the bank's New York offices, declined to provide NHCN with the names of the buyers, stating the bank's preference to have that information come from Pergament. Calls to Pergament's president, Robert Arcoro, and chief financial officer, Michael Ring, as well as to several of its store managers and to Pergament Investments, which owns the company's real estate, were either not returned or resulted in no comment about the transaction.

According to Newsday, the New York-based daily newspaper where this story first appeared, WestLB, as the bank refers to itself, had been operating Pergament under an exemption allowed by the Federal Reserve. Banking laws in the United States prohibit foreign-based banks from owning U.S.-based companies.

Pergament, which started in 1935 as a small paint and wall covering store, has struggled to maintain its once-dominant position in the New York metropolitan market ever since Home Depot started opening stores there in the late 1980s. Depot currently operates 15 stores on Long Island, N.Y., where Pergament has its heaviest concentration of outlets.

Brothers Bob and Murray Pergament sold the chain on Feb. 28, 1989, to two investor groups -- Mancuso & Co. and Equitable Capital Management -- for an estimated $175 million. Three years later, the company barely escaped bankruptcy when its lenders accepted an equity-for-debt swap on $94.5 million of long-term debt, which allowed Pergament to negotiate a new $40 million line of credit and pay its vendors. As part of this deal, Mancuso & Co. relinquished its stake in he company.

At the time of the debt restructuring, Pergament's then president, Alan Kane, spoke about Pergament developing a "total home center" that would be different from Depot's stores. Throughout the early and mid 1990s, the company experimented with a variety of store formats and sizes. In September 1991, it opened its first of six Rooms 'N Lights stores -- 24,000-square-foot outlets specializing in lighting, furniture and home furnishings -- only to close those stores by February 1992. Eight months later, the company opened its first Pergament Express, a 13,000-square-foot, 8,500-sku outlet that focused on paint, wallcovering and floor covering. Pergament eventually opened 18 Express stores, although it shrunk the prototype to 4,000 square feet.

The company had opened its largest store, 115,000 square feet, in Islandia, N.Y., in August 1991. But within a year, it had all but jettisoned any hopes for becoming a significant big-box operator. Its CEO, Bob Tammero, who joined the company in the summer of 1992, attempted to move the company towards more compact home centers, ranging from 30,000 to 60,000 square feet, with paint as their highest profile department.

Tammero, though, was gone within five years, and the instability of Pergament's management -- it has had five presidents in the last 10 years -- has hurt the development of Pergament's long-range competitive strategy. WestLB, in fact, has been trying to reduce its holdings in the company since at least 1996.

What Pergament's current managers and its new owners plan for the company is not known. NHCN estimates that Pergament's sales in 1999 declined 16 percent to $320 million. Company watchers suggest, however, that Pergament is having some success with its Express outlets.