We're in the midst of private equity binge. There's a ton of emboldened private money seeking companies of all sizes -- even names like Home Depot (NYSE:HD) are attracting interest.

Now, Foolish investors tend to place great value on companies run by excellent management, ideally with significant ownership stakes. In many cases, these are the same companies targeted by private investors who woo often-willing suitors with greater pay, freedom from Wall Street pressures, and escape from compliance with legislation like Sarbanes-Oxley. As a consequence, many good companies will be acquired.

It's not just private money, either. As reported by Tim Hanson, approximately $62 billion worth of merger activity was announced over the past few weeks alone -- with even more being reported today.

Closer to home
By that reasoning, I believe that one of the picks in our Stocks 2007 annual stock-picking guide will be bought out. The trend is too convincing, since many of the stocks we've recommended in the past have succumbed to outside acquirers. From Stocks 2004, Oxford Health Plans was taken over by UnitedHealth (NYSE:UNH), Alderwoods was bought by Service Corp. International, 7-Eleven was taken private, and Lone Star Steakhouse (NASDAQ:STAR) may follow. Stocks 2005 lost LowranceElectronics to a division of Simrad. And Stocks 2006 saw Pixar acquired by Disney (NYSE:DIS) and will see Outback Steakhouse (NYSE:OSI) taken out by private equity.

A moment of silence, please
There are a few nice things about buyouts. For one, they mean you're finding good companies trading at good prices.

On occasion, a buyout can maximize your gains. For instance, from our own list above, the Lowrance Electronics acquisition was probably best for that company's shareholders -- the company was horribly overmatched by larger competitors Garmin (NASDAQ:GRMN) and TomTom. Similarly, Alderwoods was always more of a small-cap turnaround story. Once the turnaround was largely complete, there was little more to be realized. (For those of you scoring at home, Alderwoods clocked in a 136% return in roughly three years.)

The rule is the rule
These examples are the exception, not the rule. The likelihood of a buyout reinforces a favorite investing lesson of mine: Price matters, so buy companies with a margin of safety at a discount to their intrinsic value. In the event of an unfortunate (for you) buyout, you should at least benefit from a buyout premium. But I like my market-beating returns to accrue to me, and really don't enjoy being forced to tender my shares years earlier than I otherwise would have, potentially missing hundreds of percentage points' worth of gains. Factor in the taxes we have to pay from any gains accrued, and it gets even more miserable.

The plight of Pixar
Pixar, for example, was a machine. Their offerings, even the Cars misstep, were hugely entertaining and profitable. Moreover, delivering Cars would have finally freed the company from Disney's shackles.

Given Apple (NASDAQ:AAPL) CEO Steve Jobs' position as controlling shareholder in Pixar, we should perhaps not be surprised that he jumped at Disney's takeover offer (the man is now the largest shareholder of the "House of Mouse" and sits on the company's board). Nevertheless, it's sad that Pixar never got the chance to flourish independently.

The Foolish bottom line
Nothing immediately jumps out at me as the next candidate for a takeover, but that's a key point: Focus on buying good companies at good prices, ones that you can hold for years if not decades, and let the chips fall where they may. Chasing a buyout target may cause you to miss fundamental warning signs about the business. So while there's a binge of M&As going on in today's market, as a long-term investor, you're best served to silence the noise and focus on fundamentals.

Stocks 2007: The Investor's Guide to the Year Ahead is full of good companies at great prices -- meaning it's likely that at least one won't be around a few years from now. Get started guessing by grabbing your copy today. Just click here for more information.

Fool contributor Jim Gillies owns shares of Garmin. He's still annoyed about losing Oxford Health Plans. UnitedHealth, Garmin, and Disney are Stock Advisor recommendations. UnitedHealth is also an Inside Value pick, as is Home Depot. The Fool has a disclosure policy.