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MARK IV CONCENTRATING ON FRIENDLY TAKEOVERS

The demise of the hostile takeover hasn't stopped acquisition-minded Mark IV Industries Inc. from snapping up companies. It's just forced the Amherst-based conglomerate to shift gears.

After relying on a series of hostile takeovers to increase its sales by an average of 31 percent a year during the 1980s, Mark IV has turned to friendly acquisitions as a way to expand its core businesses and round out its product lines.

Already this year, Mark IV has acquired four companies through negotiated deals that have cost the company roughly $104 million and will add $220 million in annual sales.

And more deals are in the works, says Sal H. Alfiero, Mark IV's chairman and chief executive officer, although he won't say what companies his firm is eyeing.

The highly leveraged company also probably will sell some of its operations that don't fit into its long-range plans to free up that money to pay off debt or for other acquisitions, says Theodor J. Kuntz, an analyst at Bear Stearns & Co. in New York City.

So far, those acquisitions, including two deals that were announced last month, have expanded Mark IV's operations in Europe and increased the company's presence in the professional audio, hose and sign markets.

The European connection is particularly important because each of Mark IV's main businesses -- mass transportation, professional audio and industrial belts and hoses -- are part of a global market.

By expanding Mark IV's operations into Europe, Alfiero says the company hopes to increase its presence in a major market that is expected to become even more lucrative after trade barriers come down in 1992.

"You can't just export to Europe. You've got to have a presence there," he says.

Still, Alfiero says Mark IV's new strategy of growing by acquiring companies that already have operations in its niche markets won't produce the same type of rapid growth that the hostile takeovers did during the 1980s.

"It is a departure for us compared with the last five years," Alfiero says. "The growth won't be as dramatic because we won't be out there doing the megadeals."

In part, Mark IV had to change its strategy because of the collapse of the junk bond market, which the company had used extensively to finance its hostile takeovers. "The hostile takeover business, for all intents and purposes, is done," Alfiero says. "The financing mechanisms are cut off to us."

So if Mark IV wanted to keep building on its core businesses, it had to take a more friendly approach.

It also had to line up an alternate source of financing, which it did in June when a group of banks agreed to give the company a $300 million credit package, more than doubling the $125 million revolving credit line it replaced.

The timing of the financing package also was fortunate for Mark IV, because Alfiero says banks tightened their lending practices so much in the ensuing six months that he doubts the company could put together the same credit agreement today.

Even so, analysts say the size of the credit package -- and the collapse of the junk bond market -- prevents Mark IV from making any huge acquisitions, like its $625 million takeover of Armtek Corp. in 1988.

"Acquisitions will continue to be a big part of the company's growth in the years ahead, but changes in the financial markets will require that most of the purchases be fairly small," says Stuart J. Benway, an analyst for the Value Line Investment Survey.

And with the economy slowing and many of the mergers and leveraged buyouts that dominated the 1980s now running into financial trouble, there's no shortage of acquisition candidates, Alfiero says.

"We have always had the other kinds of deals presented to us, but it has accelerated in the last year because of the number of LBOs going bad," says Alfiero, who also used highly leveraged deals to expand Mark IV's operations.

Indeed, Mark IV's acquisition of Anchor Swan came amid serious financial problems at the hose manufacturer's parent company, Harvard Industries Inc., a St. Louis-based auto parts firm.

If fact, Harvard Industries, which went private in a debt-financed takeover in late 1988, missed an interest payment on its $200 million junk bond debt the same day that the Anchor Swan deal was announced.

And financial problems forced Brunswick Corp. into a major restructuring program during the time that the company was negotiating to sell its Vapor Corp. subsidiary to Mark IV, although those talks ultimately failed after more than a year of discussion.

In all, the acquisitions have pushed Mark IV's revenues above the $1 billion mark, if they are measured on an annual basis. Mark IV's sales for the fiscal year that ends in February probably will come in at $910 million to $920 million because all of the new companies were added during the 12-month period, Alfiero says.

Mark IV's biggest acquisition of the year was Anchor Swan, which makes rubber and plastic hoses for the automobile, industrial and consumer markets. Not only do Anchor Swan's products fit in with those made by Mark IV's Dayco Products subsidiary, but the acquisition also will expand the division's manufacturing capacity, Alfiero says.

Before the Anchor Swan acquisition, Mark IV was facing the prospect of spending $20 million to $25 million to expand Dayco's capacity for mixing the plastic and rubber that are used to make hoses, Alfiero says. But Anchor Swan has excess capacity that will enable Mark IV to avoid building any new facilities.

Mark IV also bought out Dayco's partner in a small Italian joint venture that manufactured hoses.

Mark IV's professional audio business also was increased through the acquisition of Dynacord, a West German firm, and its efforts to buy Klark-Teknik Plc., a British company, through a tender offer that expires Wednesday. The companies make sound-mixing consoles and other professional audio equipment used in studios and for live entertainment.

Mark IV's goal, Alfiero says, is "to build a higher profile and build a manufacturing base in Europe" for its professional audio business. In addition, Dynacord had some extra manufacturing capacity that Mark IV plans to use to ease the strain on Klark-Teknik's operations, which were running at their limit and needed more space.

Looming behind those acquisitions is the movement toward consolidation in the $750 million professional audio industry, which eventually will be dominated by two or three key players, Alfiero says.

Mark IV, with $190 million in annual audio sales, now accounts for more than a quarter of the professional audio market. "Our goal is to be the largest in the business," Alfiero says.

In addition, Mark IV purchased ACCL, a Hong Kong distributor that has strong ties to mainland China. Alfiero thinks mainland China could be a good market for audio equipment because the country has about 36,000 musical groups that travel from town to town -- and each one needs the type of audio equipment that Mark IV makes.

"It's a market that we see as growing and (ACCL) provides an entry into the market," he says.

Mark IV's other acquisition -- Ferranti-Packard -- was a move toward vertical integration, since Mark IV was Ferranti's biggest customer. The Ontario company, which generates nearly half of its revenues in Europe, makes the electronic dot matrix system used in the programmable signs made by Mark IV's Luminator division.

"These markets are not cyclical," Alfiero says. "They're geared toward encouraging energy conservation and the moves to break traffic gridlock" through the use of programmable road signs warning drivers to avoid areas where traffic is backed up.

Indeed, the recession-resistant nature of some of Mark IV's businesses is an important factor for the company, which was carrying $580 million in long-term debt at the end of August.

Because Mark IV has 32 separate operating units, its diversity has allowed the company to avoid the dependence on a single industry that doomed slews of other firms that took on heavy debt loads during the 1980s.

If that dominant industry weakened or failed to grow as fast as expected, many of those highly leveraged companies found that they were unable to meet their heavy debt payments later on.

With Mark IV, however, the sales of replacement parts to the automotive industry, which are likely to remain strong as the economy weakens, account for about 18 percent of its total revenues, Alfiero says.

"Its transportation unit is benefiting from infrastructure spending, as well as growth in the mass transit market," says Benway, the Value Line analyst. "Moreover, the company has a good position in many overseas markets that are relatively healthy despite the soft U.S. economy."

All that acts as a buffer for Mark IV in troubled times. "Our business mix is such that the company doesn't have big peaks or valleys," Alfiero says.

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