Synergies can exist only on a regional level, and profits should be realized very quickly after acquisitions are made, said Robert Philip, president of Schnitzer Steel Industries. But Jones thinks the best strategy is to build a national network in stages. His company typically buys three to six companies when it enters a new market. Luria's strategy has been to consolidate large-volume scrap yards in regions where the company has a strong presence. Many mergers haven't proven that they can capitalize on these synergies, said Terry Newman, senior vice president and chief operating officer of Co-Steel.
Some companies focus on size at the expense of efficiencies.
The downturn in scrap prices and the effect of the Asian financial crisis also were debated. These developments are causing more small firms to bail out, further fueling consolidation. But many companies are buying out their smaller competitors at inflated prices, Philip says. The big question for consolidators is whether continued acquisitions are good at any price given the current market. Many consolidators are saying yes, Philip said.