Whether you're talking about small "tuck in" acquisitions, large megamergers between industry giants, or one firm taking a significant stake in another, the urge to merge remains strong.

We can't always tell the good deals from the bad. While we might get "synergy," we could also 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'll take a shortcut to decipher the good deals from the dealbreakers, using the more than 30,000 ranked investors in the Motley Fool CAPS universe to rate the companies currently wheeling and dealing. 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 CAPS ratings forecast investors' sentiment of a company's future prospects.

Here's a handful of recently announced deals, and the CAPS community's ratings for the players involved. One star is the worst rating; five stars are the best:


CAPS Rating


CAPS Rating

Deal Price

Fortress Investment Group (NYSE:FIG) and Centerbridge Partners


Penn National Gaming (NASDAQ:PENN)


$8.9 billion

Madison Dearborn Partners


Nuveen Investments (NYSE:JNC)


$5.4 illion

Phillips (NYSE:PHG)


Color Kinetics (NASDAQ:CLRK)


$794 million

Sun Capital Partners


Friendly's (AMEX:FRN)


$337 million

Despite the relative calm of the past week, private equity remains 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. They now account for 35% of all mergers and acquisitions, more than doubling the 16% they represented last year.

While the boom continues, public companies' cash hordes also fuel M&A madness. 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 pockets.

Digging into the deals
So what do CAPS investors think about these targets and acquirers? Quite a lot, it seems. The CAPS community has a high opinion of nearly all the companies represented here today.

Investors in Penn National Gaming think their company is being taken on the cheap. Will more offers arise? CAPS investor UncommonSense thinks so: "PENN is being taken out at only 10.3 times forward earnings when rivals got a valuation between 11 and 12 times forward EBITDA. PENN will most likely be the subject of a bidding war with the eventual price reaching between $70 to $80."

That view was presciently noted last August, when Motley Fool Rule Breakers analyst Tim Beyers, who goes by the name TMFMileHigh on CAPS, commented about how cheap Penn was:

Once again, I'm cheating. This time I'm stealing from Chuck Akre, manager of FBR Small Cap (FBRVX). In an interview in early August he reminded me that this maker of slot and lottery machines trades for just 10 times FCF. That's amazingly cheap when you consider that Penn has expanded book value by an average of 30% annually over the last several years. I'll take those odds. And thanks, Chuck.

Interestingly, CodeCracker sees acquirer Fortress as the loser, because it's overpaying for Penn:

Fortress was in the news on Friday; the stock sold off more than 6% for two reasons:

1) They are buying Penn National as a private equity play at a big premium to [its] market value.
2) Some Democratic legislators are working on a bill that would call for new tax treatment for companies like Fortress ...

Back to the two events that triggered a sell-off: 1) The Penn National deal may or may not make money for Fortress, but it's just one deal. It's not the end of the world. 2) The new tax legislation may or may not be passed. It doesn't change the tax status of all of Fortress' income--in particular, it doesn't change the tax status of Fortress' lucrative performance fees. And, if it does get passed, it may not take effect immediately.

More importantly the company announced they plan to pass on to stockholders dividends which reflect 75% of their earnings. The new dividend is $.225 per share per quarter or $.90 per year on a stock that's currently selling at around 23.5. This could be one of the best "dividend growth" stories in the market. So, I'm buying FIG on Monday. I don't think you'll have to wish me luck.

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 whether it'd be better to fight for independence.

Friendly's is a recommendation of Motley Fool Hidden Gems Pay Dirt. Get a double scoop of market-beating recommendations with one quick click.

Fool contributor Rich Duprey owns shares of Color Kinetics, but holds no financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool's disclosure policy always has room for one more.