Harvey Electronics, the struggling New York metro area A/V chain, will receive a $4 million capital infusion from two private equity firms in exchange for four seats on the retailer's board, including that of chairman Michael Recca.
Harvey said it will use the funds to refurbish its stores and add new locations.
The capital is coming from several institutional investors led by Trinity Investment Partners and Firebrand Partners, an investment firm focused on the specialty retail sector.
Trinity founder Andy Stackpole is expected to succeed Recca as chairman. Joining him on the board are Trinity managing partners Ron Jones and Charles Berger. Another Trinity partner, Peter Larson, is expected to assume the role of special advisor to the chairman, while Firebrand's Scott Galloway will likely assume a fourth seat on Harvey's board.
“We view Harvey as the nation's premier platform to invest in the incredible growth that is taking place in the high-end home theater installation market,” said Stackpole. “This is a $3 billion-plus market that is growing in excess of 20 percent per year. With Harvey's brand, experience and infrastructure we believe it is well-positioned to capitalize on this growth.”
It is expected that Harvey's remaining board members will step down and be replaced by a new slate of directors to be voted on by shareholders, the company said. Harvey's management team, including CEO Franklin Karp and chief financial officer Joseph Calabrese, will remain in their current positions following the investment.
“It's a great day for our shareholders, our customers and our employees,” said Karp. “The infusion of this equity growth capital combined with the talents of the CEOs who will be joining our board is unprecedented for a small-cap consumer electronics company. Harvey's goal is to become the dominant installer of high-end home theaters in the New York metropolitan region, and we now have the money and the management talent to pursue our ambitions.”
Indeed, Stackpole is a former managing director in Merrill Lynch's global consumer products group; Jones is the former chairman and CEO of Sealy mattresses, Berger was chairman and CEO of Scotts Lawn and Garden and Heinz's Weight Watchers division; Larson was previously chairman and CEO of Brunswick, worldwide chairman of Johnson & Johnson's consumer and personal care group, and president of the health, infant and adult care sectors of Kimberly-Clark; and Galloway is the founder and former chairman of specialty retail firm Red Envelope.
Harvey said it will use the capital primarily to refurbish existing stores and add new locations employing the Harvey Design Studio retail concept that will showcase the company's premium products and services in lifestyle vignettes that “reflect the design and comfort found in the homes of its high-end customers.” In addition, the funds will be used for general corporate purposes and working capital.
Joseph Calabrese, Harvey's chief financial officer, described the deal as “a transforming event for the company,” which has posted soft sales and weakened earnings in recent quarters.
Under terms of the arrangement, investors will purchase newly issued shares of 8 percent convertible preferred stock, convertible into common stock at $0.70 per share and receive approximately 1.7 million Series A seven-year warrants exercisable at $1.40 per share. The transaction is subject to shareholder approval, which the company will seek at a special meeting of shareholders.
Separately, Harvey has determined that this month's $1.5 million bid by Modern Technologies to buy a majority position in the company does not comply with Securities and Exchange Commission requirements for a tender offer, and has decided to take no action on the acquisition bid.