From tiny acquisitions to massive 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
To help, we'll turn to the 100,000 investors in Motley Fool CAPS. A combination of two companies with high CAPS ratings should bode well for the new company's 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 are some recently announced deals, and the ratings for each participating company on CAPS' five-star scale:
Acquirer |
CAPS Rating (5 Max) |
Target |
CAPS Rating |
Deal Price |
---|---|---|---|---|
Cablevision |
* |
Sundance Channel network |
NR |
$496 million |
Illinois Tool Works |
***** |
Enodis |
NR |
$2.1 billion |
First Place Financial |
* |
Camco Financial |
NR |
$97.2 million |
KBR |
***** |
BE&K |
NR |
$550 million |
Knight Capital |
***** |
Libertas |
NR |
$75 million |
Heartland Payment Systems |
***** |
Network services business of Alliance Data Systems |
**** |
$77.5 million |
Autodesk |
**** |
Moldflow |
***** |
$297 million |
Infogrames |
NR |
Atari |
NR |
$11 million |
Microfocus |
NR |
Net Manage |
NR |
$73.3 million |
A bear of a time
Although there seems to be a greater number of deals pending, in fact the $736 billion of deals in the first quarter was the smallest global amount in dollar value in six years. The total number of deals was up 14% to more than 9,100 deals: They're just worth less. The main reason is the 41% decline in U.S. deal values to $203 billion, though some of the slack has been made up in both Russia (up 173% to $33 billion) and China (up 43% to $35 billion).
An inconvenient truth
Butch Cassidy never had it so good, but maybe that's because Paul Newman is off growing organic foods. Regardless, Robert Redford's role as the Sundance Kid was the inspiration for a series of investments Redford has made through his Sundance Institute to promote independent movies and his environmental and social causes. The Sundance Film Festival has brought greater attention to a number of independent films over the years, such as Little Miss Sunshine, Clerks, and sex, lies and videotape. The Sundance Channel, an outgrowth of the institute, shows uncut independent movies and original programming.
Cablevision will finance part of the deal with General Electric
Perhaps adding another source for movies is an attempt to make Cablevision a more compelling choice, considering the competition. It's not enough for some investors, though, like CAPS All-Star TMFDeej. This CAPS player views the threat from Verizon
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 -- or whether you think it's better for the companies involved to remain independent.