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 deal-breakers?

Breaking down the buildup
We'll turn to the more than 81,000 investors in Motley Fool CAPS for help. A combination of two companies with high CAPS ratings should bode well for the new company'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

Oracle (Nasdaq: ORCL)

****

BEA Systems (Nasdaq: BEAS)

***

$8.5 billion

Terex

*****

ASV

***

$488.0 million

NYSE Euronext (NYSE: NYX)

*****

American Stock Exchange

NR

$260.0 million

Bank of America (NYSE: BAC)

***

Countrywide Financial (NYSE: CFC)

*

$4.00 billion

Blackstone Group (NYSE: BX)

**

Performance Food Group

**

$1.3 billion

Sun Microsystems (Nasdaq: JAVA)

***

MySQL

NR

$1.0 billion

JDS Uniphase

**

Fiber Optic Division of Westover Scientific

NR

$50.0 million

L-1 Identity Solutions

***

Bioscrypt

NR

$44.4 million

Computer Sciences

 **

First Consulting Group

*****

$365.0 million

Odyssey HealthCare

****

VistaCare

*

$147.1 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, while private-equity deal volumes totaled $46 billion for the month, compared to $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 deals that were previously announced. Private equity may soon have to prove o 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 few of these deals exceed $1 billion, the better part are below that threshold, and most of the companies are well-favored by investors, having garnered ratings of three stars or better.

Somewhere in the middle
Middleware, the ability to make incompatible computers work together, was brought to the mainstream by BEA Systems. Despite the disinterested pose initially struck by Oracle, it remained very much interested and ultimately bid more than $8 billion to ensure that it would be able to incorporate BEA's 15,000 companies into its fold.

CAPS investors like invest4cash feel that the fundamentals underlying Oracle's business are sound and that it should be able to fend off any economic downturn in the U.S.

This is a company with good fundamentals, that has held-up very well during the last months' turmoil. It has beat analysts' profit expectations 3 of the last 4 quarters (Aug. 2007 the results were in-line with expectations); In the last 30 days, analysts have raised their expectations for the current quarter, and for as far out as May, 2009. Its current ROE is 27.5; its ROA is 14.8; the resulting ROIC is 18.6. Because it is in IT, any [domestic] slowdown here will be buffered by the likely continued expansions in India and China.

As top-rated CAPS All-Star torpedoal noted last June, Oracle is determined to surpass SAP as the top commercial software company and will pursue an acquisition-based strategy to do so.

Larry Ellison, CEO is aimed at being the first commercial software company in the world capturing the title from SAP ( German [company] ). The company is on the acquisition trail to meet such objective and will accomplish that within a year. I see the stock hitting $35 a share in one year.

A value-added offer
What's your take on these deals? Tell the CAPS community whether the urge to merge is good to go -- or whether you think it's better for the companies involved to remain independent. 

Bank of America is a recommendation of Motley Fool Income Investor. NYSE Euronext is a Rule Breakers selection. You can get 30 days of free stock picks with a trial subscription 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.