Merger Mania in ’96 Already Surpasses ’95

Corporate mergers in 1996 have already exceeded last year’s record as companies combine to boost profits.

Mergers and acquisitions involving U.S. companies reached $362.6 billion so far this year, about $1.5 billion more than in all of last year, according to Houlihan Lokey Howard & Zukin, a Los Angeles-based investment bank that tracks M&A.;

With the U.S. economy expanding at an average annual rate of only 2.75% for the last three years, many companies see mergers as the best way to grow.

“Businesses want real growth, and they’re finding it more efficient to get it by acquisition than by starting from scratch,” said Scott Adelson, a managing director at Houlihan Lokey.

The biggest mergers this year came in the telecommunications industry, as new federal legislation gave companies access to each others’ markets. In April, Bell Atlantic Corp. said it would buy Nynex Corp. for $20.5 billion and SBC Communications agreed to acquire Pacific Telesis Group for $16.7 billion. In August, WorldCom Inc. bought MFS Communications Co. for $12.4 billion.

To be sure, buyers are driving harder bargains this year than last, paying an average of only 35% more than sellers’ share price compared with an average premium of 46% last year.

Buyers are more wary because “the premium properties have already been acquired,” amid the merger boom of the last couple of years, Adelson said.

Still, a surging stock market and low interest rates give companies plenty of ways to pay for acquisitions, he said, which should help sustain the boom.