Whether it's small "tuck in" acquisitions, large megamergers between industry giants, or even private-equity buyouts, 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-worse-ification": 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 deal-breakers. We'll see how the 30,000 ranked investors in the Motley Fool CAPS universe rate these 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 a scale of one to five stars, with five being the best):


CAPS Rating


CAPS Rating

Deal Price

Aluminum Corp. of China (NYSE:ACH)


Peru Copper (NYSE:CUP)


$792 million

Cal-Dive International (NYSE:DVR)


Horizon Offshore (NASDAQ:HOFF)


$650 million

D.E. Shaw


James River (NASDAQ:JRVR)


$575 million

Private equity remains active in the M&A field, though public companies are in the forefront today. 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 still goes on, public companies' cash hoards also are fueling the M&A boom. 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 their collective pocket.

Diving into marine services
So what do CAPS investors think about these targets and acquirers? Quite a lot, it seems. All of the companies represented here today are viewed highly, with four- and five-star ratings.

Yet perhaps nowhere is the favorable outlook more easily seen than in the hook-up between Cal-Dive and Horizon Offshore, both five-star stocks. The amazing thing is that, of the more than 100 professional and novice investors rating the company, not one sees Cal-Dive as underperforming the market -- it has consistently earned that five-star rating.

The unanimous sentiment for the marine services firm is based on its being the leading player in underwater oilfield services. It provides manned diving, pipe laying and burial services, and maintenance, repair, and decommissioning of offshore pipeline infrastructure in the Gulf of Mexico.

  • CAPS investor jon5555 says the situation is prime for Cal-Dive. "How could an outfit be in a better situation? Relatively small market, well organized, and after all of Mother Nature's recent mess-making in the gulf. Should be as close to a sure thing as I can find."
  • That view is echoed by industry analyst and research firm Netscribes. "Cal-Dive currently derives over 13% of the revenues from international operations and their business could grow further as the markets like Middle East and West Africa where the company operates require better production infrastructure to complete oil and natural gas discoveries. Additionally, looking ahead, management is upbeat about driving their business from the repair works; as the damages caused by the hurricanes in the past have not been fully revamped. Factoring these elements, the scrip deserves to be applauded by the community of investors."

Similarly situated Horizon Offshore seems to be a natural fit for Cal-Dive. Top-rated investor coryjobe could probably understand Cal-Dive's interest, considering its valuation. "Trading at only 11x earnings, has only 110m in debt, had their first profitable year last year in awhile and continues to increase their profits at a rapid pace. Has a relatively high ROE and a low book value when compared to other drillers."

A Foolish offer
What's your take on these deals? Should investors accept the cash, or take stock in the new company (if offered)? Does taking a stake mean better times ahead? Tell the CAPS community whether the urge to merge is good to go or if it would 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.