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 firm'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

Pfizer (NYSE: PFE)

***

Encysive Pharmaceuticals (Nasdaq: ENCY)

***

$195 million

Amedisys (Nasdaq: AMED)

*****

TLC Health Care

NR

$395 million

FNB (NYSE: FNB)

*

Iron & Glass Bancorp

NR

$86.1 million

Tennant (NYSE: TNC)

**

Applied Sweeping

NR

$68 million

M&F Worldwide (NYSE: MFW)

***

Data management unit of Pearson

***

$225 million

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

The deal space is drying up -- unsurprisingly, as capital is becoming harder to come by. In January, there was only about $180 billion worth of acquisitions announced. That amount is 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 could be thanks in large part to the huge Microsoft bid for Yahoo!.

So what do CAPS investors think about these targets and acquirers? It seems they generally approve of most of the companies, since almost all have a rating of three stars or better. But these are all small deals that should not dramatically impact the bottom lines of many of the companies.

Pforecast pfor Pfizer
The Encysive deal gives Pfizer a chance to bolster its own line of pulmonary arterial hypertension therapies with the PAH drug Therin, which has European community approval but not U.S. support. An FDA decision last year sank Encysive's stock and sent its CEO packing. With Pfizer committed to backing U.S. trials, the drug -- which competes with products from other PAH drugmakers like Gilead Sciences (Nasdaq: GILD) -- might get the boost it needs to make it to market.

The market researchers at Datamonitor expect the PAH market to grow to $2 billion by 2014, while the entire antihypertensive market should exceed $50 billion by then. Drugs already approved for PAH have been strong sales, so getting Thelin approved will be a priority for Pfizer, but further delays would only serve to cut its chances to get a larger slice of the pie.

CAPS player bondmanbrown predicted just a couple of days ago that the $20 billion in cash on Pfizer's balance sheet would be used to make acquisitions. With the pharmaceutical industry being on the outs thanks to patent expirations, he sees Pfizer as having the wherewithal to buy itself forward:

Pharmaceutical industry has been hit with downward pressure from products coming off-patent for the last few years. They are sitting on 20 billion dollars in cash in case things get tough in the upcoming year. This cash could easily be used to buy a bio-tech firm as well. 41 consecutive years of increased dividends. There is plenty of incentive to wait for the next blockbuster drug to come from Pfizer. Healthcare is a trend that will never end.

That's just what CAPS All-Star xthecritic wrote earlier this month about one of the leading market players:

This is a sector play. Drug manufacturers have been and will continue to outperform the market in the next 12-18 months as we deal with economic weakness. I like the sector overall after several years of pressure from products coming off patent and with positive overall demographic trends.

Pfizer is a market leader in big pharma.

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

Microsoft and Pfizer are recommendations of Motley Fool Inside Value, and Pfizer is a pick in Income Investor. Amedisys is a Stock Advisor pick, while Yahoo! is a former selection of that service. You can get 30 days of free stock picks from 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.