Merger mania is getting crazier in Buffalo.
The year is less than three months old, and already, five Buffalo-area companies have hammered out six deals to buy other businesses.
Shareholders last week approved the biggest local merger of the past year -- the $872 million purchase of OnBancorp in Syracuse by First Empire State Corp.
It's all part of a national trend that has companies gobbling each other up at a record pace -- and there's no sign that the buying boom is going to stop anytime soon.
Last year, U.S. companies announced more than 10,700 merger deals worth in excess of $919 billion, according to Securities Data Co., a New Jersey company that tracks mergers and acquisitions. That was the most in any year, and the value of those deals was 47 percent more than the record set in 1996. And so far this year, the merger game is running at an even faster pace, with the value of the deals announced through the first two months of this year running about 4 percent ahead of 1997's pace, Securities Data said.
A host of factors combine to fuel the merger boom, which has reached new highs during each of the last six years.
Industries are consolidating as companies scramble to find ways to get bigger, cut costs, obtain new technology and push into new markets. After almost a decade of cost-cutting and reorganizing, American companies are finding that they can't keep boosting their profits by trimming expenses and lopping off jobs.
"The pressures to be cost-effective are intense," said Donald W. Hauck, Bush Industries Inc.'s vice president of finance. "Being big will give you certain economies of scale, but it's not the be-all, end-all."
Customers are using fewer suppliers, which rewards the ones that can offer a wider range of products and services. And it takes years to push into new markets or develop new product lines from scratch, which makes acquisitions an attractive alternative.
As a result, there's a growing sense that bigger is, indeed, better.
"It's harder and harder for small companies to exist as stand-alone companies," said Brian J. Lipke, the president of Gibraltar Steel Corp., which has made five acquisitions in the last four years, including one earlier this month. "The number of companies that are recognizing that they need to put themselves on the block is growing steadily."
For Bush, which has acquired three companies in the last two years, each purchase was made for a different strategic reason, Hauck said.
The ready-to-assemble furniture maker bought Colorworks Inc. two years ago for its film-processing technology that allows products to be decorated with unusual shapes and designs. Last year's $43 million deal to buy Rohr Gruppe, the 10th-largest German furniture maker, gave Bush an established presence in the European market and its pending purchase of Fournier Furniture Inc. provides the company with a quick way to expand its manufacturing capacity.
"The people who have the marketing, technical expertise and finance can stay independent," Hauck said. "You can't compete without all of those."
And when one company merges with another, it steps up the pressure on its competitors to work out its own deals to keep from falling behind.
John J. Sciuto, the president of Comptek Research Inc., said the West Seneca-based defense electronics firm couldn't afford to simply stick to its knitting while the defense industry downsized and consolidated throughout the 1990s.
"Can a $50 million to $100 million defense company succeed and realize substantial growth in such an environment?" he asked. "Not without doing something dramatically different and aggressive."
Record stock prices are allowing buyers to pay higher prices in deals when they pay in stock. And the high share prices also may help convince sellers that this is a good time to cash out.
"If your stock is selling at a high price . . . your stock goes pretty far in a stock-for-stock exchange," said Victor S. Pastena, a University at Buffalo business professor. "They're able to afford these higher prices."
Low interest rates make it cheaper to finance deals by issuing bonds or borrowing money from banks.
"There is a lot of money available at reasonable rates," Lipke said.
Even if a company has to borrow heavily to buy another business, the low interest rates often keep interest expenses down to levels where even highly leveraged acquisitions still can add to their new owner's profits, he said.
Columbus McKinnon Corp., for instance, plans to sell $200 million in bonds to help finance its $155 million deal to buy LICO Inc., a Kansas City-based company that makes and designs conveyor systems.
While the deal will give Columbus McKinnon a highly leveraged balance sheet, with debt making up 73 percent of its total capitalization, executives at the Amherst chain and hoist maker say they aren't worried that the debt load will be too heavy.
"This company can do very well during a business cycle with high debt-to-equity," said Robert L. Montgomery Jr., Columbus McKinnon's executive vice president and chief financial officer.
"We don't intend to go any higher," Montgomery told Wall Street analysts. "But we think it's under control."
With fewer trade barriers, capitalism expanding and the Cold War becoming a distant memory, U.S. companies are turning to acquisitions as a way to push into overseas markets.
"We're really dealing with a world market," Pastena said. "What used to be a sufficiently sized company in the national market is really tiny in the global market."
And there's no telling when the merger boom will run out of steam. A sharp drop in the stock market could cool things off. So could a slowing global economy, which might dampen the demand for American goods and services and prompt companies to hang on to their cash, rather than spend it on acquisitions, Pastena said.
But so far, nothing -- not even the Asian economic crisis that has been brewing since last summer -- has stopped the buying and Lipke doesn't see any storm clouds looming.
"I don't see anything right now to slow the pace down," he said.