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 83,000 investors in Motley Fool CAPS. A combination of two companies with high CAPS ratings should bode well for the new company's future; a company that joins one with a lower rating 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:


CAPS Rating


CAPS Rating

Deal Price

Gerdau Ameristeel


Century Steel


$151.1 million

Hecla Mining (NYSE: HL)


Independence Lead Mines


$66 million

AECOM Technology (NYSE: ACM)


Earth Tech


$510 million

Dell (Nasdaq: DELL)




$155 million

Yahoo! (Nasdaq: YHOO)


Maven Networks


$160 million



Possis Medical


$344 million

Cooper Industries


MTL Instruments


$281 million

Sun Capital Securities




$542 million

Nucor (NYSE: NUE)


SHV North America


$1.44 billion

Prosperity Bancshares


1st Choice Bancorp


$68.2 million

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

The deal space is drying up as capital gets harder to come by. In January, there were only about $180 billion worth of acquisitions announced -- some 37% lower than last year, and more than 50% lower than just last month. This year is not off to an auspicious start, and while February may look better in comparison by the end of the month, that might primarily owe to the huge Microsoft (Nasdaq: MSFT) bid for Yahoo!

Yahoo! is on the menu again this week as it looks to pick up Internet video company Maven Networks. Rumors are also flying that it's in talks with News Corp. (NYSE: NWS) to thwart Microsoft's bid -- or at least to extract more money from the folks in Redmond.

So what do CAPS investors think about these targets and acquirers? They're equally divided on most of the companies this week, with about the same number of companies rated three stars or better as two stars or below.

All in the family
Although it's one of the smaller deals on the list, Dell's purchase of email services provider MessageOne gets under my skin. True, Dell has been bolstering its ProSupport services division, so the deal's not entirely out of place. But MessageOne is a start-up that happens to be run by Michael Dell's brother. Adam Dell also runs two venture capital firms, which also happen to be part-owners of MessageOne. Michael Dell and other members of his family are investors in the VC firms, too.

The troublesome aspects of the deal go even further. Michael Dell says that he and his wife will donate to charity the $12 million in profits they'll make off the acquisition, but it's unclear whether Adam Dell has made a similar commitment. The Dell brothers' parents are also slated to make about $450,000, according to Dell's SEC filings.

Looks like it's going to be a big payday for the Dell family, but I'm not sure that's what investors had in mind when they cheered Michael Dell's return to the company he founded last year.

CAPS investor Benitism counts himself as a former employee who sees dwindling sales and rising costs hurting the once-leading computer company.

I am a former employee of Dell. Many expenses need to be accounted for this year which were carried forward. Sales are not rising. Lot of money was spent on reducing workforce. Number of cost effective employees in Asia was reduced. The costs for Dell are rising. The margins shrivelling. Dell will see this year how gross mismanagement of manpower resources coupled with an aggressive pricing in a shrinking market cuts the profits. During the last few months Dell also spent a lot of money in a failed attempt to capture marketshare in the Indian market. Unfortunately the poor delivery mechanism and high transit costs led to a failure. Stay miles away from this stock in 2008.

Is buying out a small company that was co-founded by the brother of Dell's CEO the best way to rejuvenate Dell's growth? Personally, the deal leaves a bad taste in my mouth.

A value-added offer
What's your take on these deals? At Motley Fool CAPS, your opinion 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 companies involved to remain independent.

Microsoft and Dell are recommendations of Motley Fool Inside Value. Dell is also a Motley Fool Stock Advisor pick, while Yahoo! is a former recommendation of that newsletter. Try any of our market-beating investing newsletters free for 30 days.

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