From tiny acquisitions to massive conglomerate combinations, Wall Street's urge to merge remains strong. Some of these deals might generate sought-after synergy, but others could create what Peter Lynch called "diworsification" -- weakening a business's core competency by grafting on wildly unrelated subsidiaries. How can we tell the good deals from the dealbreakers?

Breaking down the buildup
To help, we'll turn to the 82,000 investors in Motley Fool CAPS. A combination of two companies with high CAPS ratings should bode well for the new firm's future results, while a high-rated company that joins a lower-rated one may benefit one set of investors more than the other.

Despite troubles in the capital markets, the deals won't stop; they simply might involve more stock and less cash. Here's a handful of recently announced deals, and the ratings for each participating company on CAPS' five-star scale:

Acquirer

CAPS Rating

Target

CAPS Rating

Deal Price

American International Group (NYSE: AIG)

***

Consumer finance portfolio of Popular (Nasdaq: BPOP)

***

$1.5 billion

Ciena (Nasdaq: CIEN)

**

World Wide Packets

NR

$290 million

Teva Pharmaceuticals (Nasdaq: TEVA)

*****

CoGenesys

NR

$400 million

Roche Holdings

NR

Ventana Medical Systems (Nasdaq: VMSI)

***

$3.4 billion

Multi-Color (Nasdaq: LABL)

****

Collotype International

NR

$185 million

CAPS ratings courtesy of Motley Fool CAPS; NR = not rated.

In November, $429 billion of corporate mergers were announced, compared to $315 billion a year ago. Private-equity deal volumes totaled $46 billion for the month, compared with $78 billion for the same period a year earlier. Still, as the credit crunch deepens, a number of investors are looking to back out of previously announced deals. Private equity may soon have to prove to boards of directors that it won't be backing out of acquisitions when things get tough.

So what do CAPS investors think about these targets and acquirers? While a couple of these deals exceed $1 billion, the better part are below that threshold. Most of the companies are well-favored by investors, having garnered ratings of three stars or better.

A popular decision
Exposure to the U.S. subprime mortgage market has hurt financial institutions here and around the globe. It was, in fact, a large part of the reason for the global market meltdown earlier this week. It's also been weighing heavily on Puerto Rico-based Popular, which had a large exposure to subprime mortgages, for which it recorded $275 million in writedowns in the quarter just reported. This led to a loss of more than $64 million for the full year, compared to a $358 million profit last year.

That created an opportunity for insurer AIG, whose finance arm is picking up Popular's consumer finance and mortgage portfolio for a premium of only about $0.03 for every dollar of loan. By shoring up its finances, though, Popular saw Moody's (NYSE: MCO) upgrade its outlook of the Motley Fool Income Investor recommendation from negative to stable.

That outlook should help it expand its reach into the Hispanic community in which it is already well represented. With branches primarily in Puerto Rico (but also in California, Florida, Illinois, and the New York metropolitan area), there are plenty of opportunities to expand in U.S. states with large Hispanic populations. CAPS investors like AFKCobra believe these opportunities will drive future growth. Here's an excerpt from a pitch written last November:

The Hispanic population is the fastest growing segment of the U.S., and as a community bank [Popular] is "tailored" well to this part of the fabric of America. I expect it is only a matter of time before growth extends to other parts of the nation, especially the Southwest. Looks to be a great value stock, with significant interest dividend.

A value-added offer
What's your take on these deals? At Motley Fool CAPS, your opinion is as valuable as the pros'. Tell the CAPS community whether the urge to merge is good to go -- or whether you think it's better for the firms involved to remain independent.

Popular is a recommendation of Motley Fool Income Investor. Moody's is a Stock Advisor selection. You can get 30 days of free access to any of the Fool's investment newsletters by clicking here.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.