The "for sale" signs are going up all around the Buffalo area's public companies.
Last week, it was Mark IV Industries Inc., the Amherst company that was a poster child for the go-go days of the 1980s before settling down in the '90s, that said it would consider putting itself up for sale.
The week before that, it was Columbus McKinnon Corp., the embattled Amherst material-handling company that has been under pressure from disgruntled shareholders for the last eight months, that planted the "for sale" sign on its front lawn.
"The bottom line is their stock prices haven't gone up," says Christopher Carosa, the Honeoye Falls investment adviser who manages the Bullfinch Funds' Western New York Series mutual fund.
Indeed, Columbus McKinnon's stock has barely budged since it went public almost four years ago and is trading for roughly half as much as it was at its peak in early May last year, when the dissident shareholders first launched their bid to have the company sold.
Mark IV's stock, despite a solid rebound last year, still is selling for about a quarter less than it did at its peak in October 1997.
And those are just the local companies that are actively courting offers. Acme Electric Corp. is starting to feel some heat from a shareholder activist who is threatening to push for a sale if the East Aurora company's stock price doesn't show a little spark soon.
There's also growing speculation that Comptek Research Inc., the rebounding West Seneca defense electronics maker, is building itself up into what soon could be an attractive little takeover candidate.
Gibraltar Steel Corp. also has hired an investment banker to help the Hamburg-based steel processor find ways to boost its stock, which has barely budged in the last two years.
But Gibraltar executives aren't so much interested in selling as they are in buying other companies to beef up its operations, which is why they've bought two other firms since hiring their adviser last July.
The common thread with all of these companies -- with the exception of Comptek during the last three months -- is that they're having trouble getting investors to show much appreciation for the value of their businesses.
If you compare a company's share price with how profitable it is, then the local stocks look pretty cheap these days. The 24 local stocks currently trade for prices that, on average, are a little more than 13 times their earnings. In other words, the average Buffalo-based company earning $1 per share is seeing its stock sell for a tad more than $13 per share.
But that's nowhere near the prices that are being commanded in the broader market, where the stocks in the big company benchmark Standard & Poor's 500 index sell for more than 31 times earnings, or $31 per share for every $1 of profits. Valuations are even steeper among small company indexes, where the Russell 2000 index of small company stocks trades at almost 66 times earnings.
Part of the problem over the last couple of years has been that they're small companies in a market that, until late last year, was obsessed with only the biggest of the corporate giants.
What's more, the Buffalo-based companies aren't a real sexy lot. They're generally cyclical manufacturers, heavily dependent on the auto industry, the defense business and the rest of the industrial economy. You won't find any dot-com companies in a portfolio of Buffalo-based stocks.
As a result, the local stocks generally aren't considered to be "growth" stocks, which is what investors have been focusing on lately. Of the stocks in the S&P 500, the fastest-growing half saw their stock prices rise more than three times as much as the slower-growing, or "value" stocks, in the index last year.
"It's not necessarily the smallness of the (local) stocks," Carosa says, noting that small company shares have rallied since last fall. "I think it's generally that they're considered value stocks in a market that favors growth stocks. And when we're talking growth, we're mainly talking about technology."
It's all causing a lot of frustration for the top executives at many of Buffalo's public companies. After all, there's no guarantee that the steps they take to "enhance shareholder value" will ultimately pay off.
Consider Mark IV. Since 1997, in the name of enhancing shareholder value, it has restructured its operations to cut costs and repositioned its replacement auto parts business. It's sold off businesses that didn't fit nicely within its automotive and industrial businesses and used $460 million of that money to buy back a third of its shares. It's also paid off some of its more expensive debt and made some acquisitions to expand its diesel engine business, especially in Europe.
Sal H. Alfiero, Mark IV's chairman and chief executive officer, says those moves have made Mark IV more competitive, solidly profitable and left the company with the dominant product lines in many of its markets, along with new products that have good growth potential.
"We currently have more opportunities to grow Mark IV internally than at any point in our history," he says.
But you wouldn't know it from Mark IV's share price, which is why the company is working with an investment banker to investigate selling all or some of its businesses. Harriet Baldwin, an analyst at Deutsche Bank Alex. Brown, thinks the company also may consider splitting its auto and industrial businesses into separate companies.
Sometimes, hard times demand bold moves. "The market has not been recognizing the value of the company," Carosa says. "What other option do they have?"