Whether it's small "tuck in" acquisitions or large megamergers between industry giants, the urge to merge remains strong.

We can't always tell the good deals from the bad. While we might get "synergy," we can just as easily get what investing legend Peter Lynch called "de-worsi-fication": weakening an existing business's core competency by grafting on wildly unrelated subsidiaries.

Breaking down the buildup
We're going to take a shortcut to decipher the good deals from the dealbreakers. We'll see how the 29,000 ranked investors in the Motley Fool CAPS universe rate these merging companies. If two highly rated companies seek a better life together, we figure they might also do better down the road. Conversely, if one company is highly rated and the other low, we might expect one set of investors to come out ahead, since those ratings forecast investor sentiment of future prospects.

Here's a handful of some of the recently announced deals, and the CAPS community's ratings for the players involved on its scale of one to five stars (with five stars being the best):


CAPS Rating


CAPS Rating

Deal Price

Silver Lake Partners/TPG Capital


Avaya (NYSE:AV)


$8.2 billion





$1.6 billion

Fenway Partners


1-800-Contacts (NASDAQ:CTAC)


$339.5 million

Lone Star Funds


Accredited Home Lenders (NASDAQ:LEND)


$400 million

Private equity, we see, is still very active in the M&A field. According to Thomson Financial, private equity investments in M&A deals have tripled from last year to $281 billion and account for 35% of all mergers and acquisitions. That's more than double the 16% they represented last year.

While the boom continues, public company cash hoards are also fueling the M&A explosion. According to Cullen High Yield Value Equity, the companies on the S&P 500 had $1.2 trillion in cash on their balance sheets, accounting for 21% of their market value -- and apparently burning a hole in its collective pocket.

Sayonara to Avaya?
So what do CAPS investors think about these targets and acquirers? Not much, it seems. The fallout from the subprime mortgage business seems to have been partially responsible for low-rated Accredited Home Lenders getting an offer, and contact lens marketer 1-800-Contacts has been one of those companies that's never garnered much support from the CAPS community.

The acquisition of VoIP provider Avaya has received mixed reviews. TPG Capital was the company behind the third-largest leveraged buyout featured last week, but critics wonder what it will be able to bring to the table, since it won't have the technical or product resources that Cisco (NASDAQ:CSCO) or Nortel Networks (NYSE:NT) could. Both companies have also expressed an interest in acquiring Avaya.

It may be that the buyout rumors have improved Avaya's CAPS rating lately; it's had few backers for most of the year. Investor trovak79 sums it up:

Only has upped its price based on takeover rumors, which would be the best option for this company. Their products are the only thing keeping this ship afloat, and under the right management can stave off the Cisco VoIP call center products. The management is in disarray and is in complete disconnection with its services units, and what's really going on in the fields, leaving the customer to ultimately suffer.

Another Avaya Bear, PrevAvaya, agrees about Avaya's products:

Best Call Center Products out there. Fine VoIP line-up with intuitive programming and beats Cisco in this area. Beats Cisco in features, functionality, and integration (IMHO). Avaya is its own worst enemy. Former Mgmt forgot that it had to manufacture and distribute product to get paid and its fulfillment process fell apart coming up on 2 years ago and isn't fixed yet (See fine print in 2005 Annual Report, pg. 17, and then read 2006's for same/lame excuses). The systems that do get to the customer have a failure rate that boggles the mind. Then you look for replacement parts and they're sitting in China. When you do get the parts, you can't get a person to support the implementation.

A Foolish offer
What's your take on these deals? Should investors accept the cash, or take stock in the new company if it's offered? Tell the CAPS community whether the urge to merge is good to go, or whether it'd be better to fight for independence.

A 30-day free trial subscription to Motley Fool Stock Advisor lets you merge your portfolio ideas with those of David and Tom Gardner to acquire market-beating results. Click here to start today.

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.