March 20, 2018
Paraco Corp. CEO Joe Armentano credits the company’s growth to its focus on quality employees and strategic acquisitions—31 and counting since its inception.
It took more than 40 years for propane supplier Paraco Corporation to achieve $100 million in annual sales. But in the last five years, Rye Brook-based Paraco—which evolved from a welding supply business founded by CEO Joe Armentano’s father in a Mount Vernon garage—has doubled in size. How did the company achieve this rapid recent growth? By focusing on the one great business intangible, according to Armentano.
“In any organization, it’s all about people,” he says, eschewing today’s typical focus on technology as the essential tool for business growth. “People skills are more important today than ever before. You can’t build a first-class organization without first-class people.”
That’s one of many lessons the 60-year-old CEO learned from his late father, Pat, who started Paraco after working as a salesman for a welding machine company. “One day in 1968,” Armentano explains, “he was servicing one of his large accounts, and his company wouldn’t stand behind the product. So, he decided to start his own business selling welding supplies, including gases like propane.”
Joe Armentano worked for the family company, a welding supplies business named Patsems Inc., as a youngster. Shortly after he graduated from Fordham University in 1976, his father said to him, “Why don’t we cut out the middleman and buy a propane company?” The first of what would eventually be 31 acquisitions (and counting) was Paraco Fuel Corporation in Peekskill, which they bought in 1979 for $500,000 to be paid over 10 years. Patsems was sold in 1996, and the family used the $7.8 million proceeds to purchase three more propane companies.
This year, Paraco will reach $200 million in sales to 120,000 customers, thanks in part to its largest acquisition (so far), Kingston Oil Supply Company in Kingston, New York, from Lukoil North America. “We’ve been trying to chase it down for a long time,” Armentano explains. “I talked Lukoil into putting it on the market in the first place. We lost the first bid, but the winner couldn’t close, and we were able to.” The purchase adds sales of about 10 million gallons of heating oil and 3.5 million gallons of propane annually. The price tag was $9.5 million.
It also brings the employee count to some 400 people in about 35 locations in 15 states, mostly concentrated in the Northeast. The company has two Westchester facilities, in Peekskill and Mount Vernon, as well as its headquarters in Rye Brook. “Employees are our biggest cost center aside from the cost of our propane product,” Armentano says. “Management of those employees requires great attention.” To aid the effort, his daughter, Christina Armentano Bowlby (pictured with Armentano at right), joined the company last year after a career in recruiting. Now she runs Paraco’s human capital department. “She was instrumental in the transition after the last acquisition,” Armentano explains. “We had to reduce the workforce somewhat and blend union and non-union employees into our environment.”
People skills are also essential to the acquisition process that has fostered the company’s growth, Armentano says. “A big part of the process is understanding what’s really important to the seller,” he says. “Is it his employees? The community he works in? His health or need to retire? Owners don’t just sell for money.”
Family members like his daughter aren’t the only people Armentano depends on to move Paraco forward. When his father died in 2010, Armentano recruited three independent members—an attorney, a financial manager, and an accountant—for the board of directors. He and his brother, John, hold the two other seats. The new board members are well acquainted with the family. “Having board members who also know the family dynamics and bring specific expertise to the board is very important,” he says.
Then there is the executive team, which grew as the company grew. “When you’re a one-man show, you can do everything. But when you grow, you have to develop a professional management team,” says Armentano, explaining that the company now has a CFO, a sales manager, and a business development person to do acquisitions. The top executives have five-year phantom stock plans to incentivize growth.
For Paraco, success comes from teamwork. “I like to delegate,” Armentano says. “I believe in setting up systems of accountability so that everyone knows what the metrics are. I am very big on communication between our executives because it’s important that we’re not ‘silo-ed’ as a company.” He holds quarterly executive meetings, and every two weeks he conducts a conference call with the management team.
He also does webinars on a regular basis for all employees because, as he says, “We’re so large now, I can’t get around to every location on a regular basis.” About 35 people work in Paraco’s Rye Brook headquarters, which means 90 percent of the employees are spread around the country. “Long Island is our number one market, but not by much,” Armentano says. (Long Island represents about 30 percent of total sales.) “Westchester/Fairfield is next, and the rest of the Hudson Valley is number three.”
Conquering Complexity
The propane business is more complex than it looks, with both retail and wholesale customers in consumer, agricultural, and industrial markets. The product most of us know is the ubiquitous barbecue tank, often picked up at a gas station or convenience store through an exchange program. That’s the tip of the iceberg, however, representing about 8 percent of total sales for the company. Most of the company’s revenue comes from propane sold for residential heating, cooking, hot water, generators, and pool heat. On the industrial side, a great number of vehicles are powered by propane, especially forklifts and other off-street workhorses.
That’s one area where Paraco is expanding, though not necessarily by acquisition. “We provide forklift gas for the metropolitan-New York area and are opening a new facility in New Jersey. It’s a build-out from scratch,” Armentano explains. “We will transfer some of the business we currently serve out of Mount Vernon and grow the business in New Jersey.”
Armentano’s eyes are firmly fixed on Paraco’s future, which he considers bright even though markets for propane, like those of oil and natural gas, have been roiled by over-supply and tepid growth in demand in recent years. “Our biggest challenge is making sure we can continue to grow through acquisition,” he says. “We are under-leveraged, so we can do that.”
The big question is direction. “We are a propane company” he says. “But we need to be an energy company.” The Kingston acquisition brought home heating oil into the product mix, and Armentano is looking at other options. “My job now is to find another industry we can get into that complements our existing business.” Renewables like solar and wind power aren’t on his radar, he says, because they are too dependent on government subsidies that can disappear in the future. “Natural gas, though, is a good, clean energy source, and we may get into that or something related,” he says.
He’s not the only person in the energy industry who’s thinking that way, of course. Because the heating oil business has been shrinking in the last five years, he says, “A lot of oil companies are getting into the propane business. We have a minimum of 150 new competitors in the Northeast.”
Further complicating the picture is the unsettled state of the energy market as a whole. “The energy environment is very challenging because of fluctuating prices in the industry,” Armentano says. “Add in the added competition, especially from home heating oil companies, and our margins are shrinking.”
But Armentano also sees a silver lining in that cloud: Competitors that are unsuccessful can become acquisition targets for Paraco. He’s not looking at mom-and-pop propane retailers anymore because they cost just as much to integrate as a bigger company while providing a much smaller jolt to the bottom line. “We’re trying to focus on larger opportunities,” he says. “We sometimes work with our major competitors to find locations that may not work for them but would be a good fit for us.”
One thing Armentano is not planning any time soon is his own retirement. “It took me seven years to get my daughter to join the company. Having her here may keep me in the game a little longer,” he says. “I may do a private equity partnership or something else, but the good news is we have a lot of options to explore.”