If you're a shareholder in the company being acquired, probably so; if in the company doing the acquisition, usually, not so much. Why is that? Because acquiring a company generally requires the acquirer to pay a "control" premium over the market's stock price -- that premium goes right into the pockets of the acquiree's stockholders (good for them!)... but it requires justification from the viewpoint of the acquirer's stockholders.
Say company BUY wants to buy out company SEL -- SEL's market cap just before the bid, $2 billions -- bid value, $2.5 billions (a pretty modest premium of 25%). What's SEL actually <b>worth</b>? If it's worth more than 2 billions, why was Mr Market silly enough to be happy to sell us shares at a $2 billions valuation? Well, Mr Market undoubtedly is prone to temporary follies, no doubt about it... but, if I'm the one supposed to finance this buyout (i.e., a BUY shareholder), you still have to show me that this is indeed the case in this specific instance.
If SEL's own assets (book value) are worth $1 billion, the remaining $1.5 billion of the acquisition price will go in BUY's asset account as "goodwill" -- always something worth looking out for: an intangible asset which just means "we paid so much more for some acquisitions than we can prove the acquired assets are worth"... not usually a good sign from my skinflint, value-oriented viewpoint.
From the viewpoint of optimistic, aggressive BUY's management (the kind of people you probably do want in charge of companies you own, overall), acquiring SEL is undoubtedly going to be a triumph -- it will grow their little empire, increasing their power (and likely their compensation in proportion), and it's just sure to work out great as their superior strategic vision strengthens SEL's direction (BUY's managers are of course totally certain that they're better than SEL's... and everbody else;-).
You could see this as a principal-agent incentive conflict problem, I guess, because there are cases in which the acquisition will benefit BUY's managers (increase their power and compensation) but not BUY's shareholders (reduce their overall returns on equity). However, I think that (for the typically forthright and honest -- but often overconfident! -- people who end up in top management) this is not a major consideration -- such cases are somewhat marginal. Normally, when the acquisition's a flop, BUY's management will not be happy either -- and when it's a triumph, both BUY's management and shareholders will benefit thereby... maybe not quite in the same proportions (in either case, win or lose), but that's a second-order consideration.
Rather, I think the natural "can-do" optimism (and, likely, overconfidence) of BUY's management is more likely to skew their vision in favor of acquisitions that would be better avoided (from BUY's shareholders' perspective) than any seriously distorted incentives.
That being said, the way-overused word, "synergy", sometimes does apply. Maybe SEL's bursting with brilliant people and ideas but just can't get capital enough to fund their projects, for example, while BUY can get abundant capital cheap, just because it's bigger and financially sounder. Maybe SEL, being a smaller company, suffers avoidable amount of overhead in supporting functions (such as, say, HR), which can be saved by merging the companies (maybe with some layoffs). Maybe SEL's wonderful products just can't get enough distribution, while BUY's excellent access to distribution channels can help those products make a real impact on the merged companies' top and bottom lines.
All of these situations (and more) are possible... just very hard to evaluate (in terms of probability of playing out, and likely returns if they do) for anybody who's not deeply enmeshed in the specific industry (as management of course will be, but many shareholders, even the "investor types" like me who do tons of due diligence, usually won't).
So, my own rule of thumb is to let past performance be predictive of future results -- I know everything about there being no guarantee there, but, hey, surely there is some correlation!-) I look at some companies and see a great track record of successful acquisitions over years and decades -- whether acquisitions play a supporting role in their overall company strategy (like, say, for AAPL), or a more central one (like, say, for MDT, or, even more, ORCL), they've repeatedly shown that they can successfully integrate newly acquired companies, and regularly do. I look at most companies and I see a track record of disaster, or, at best, a very mixed picture -- e.g., look at EBay's acquisition of Paypal (now arguably the brightest part of the company, with the very best growth prospects)... but also that of Skype (with the huge write-downs of goodwill and the need to hive that part off again in just a few years)...!-)
So, if I was a shareholder or considering buying into AAPL or EBAY (neither is true at this time, nor have I been in either company's stock for years), and a proposed acquisition by said company was announced, I'd react very differently. In AAPL's case, based on past performance, I'd give management enough credit to assume the acquisition won't be a bad hit against the firm's performance, and just might work out awesomely well. In EBAY's, again based on past performance, I'd be much more skeptical -- unless the underlying business logic is crystal-clear enough even to a duffer like me (in which case I'd dig deeper into the financials' entrails), like, say, Paypal's acquisition was, I'd be prudentially assessing the likelihood that management's about to play another Skype on me... and looking for an opportunity to get out of the stock (or just avoid getting into it in the first place).
The fact that the vast majority of mergers and acquisitions don't work out, is part of why I'm dubious about the possibilities of most companies hoarding big treasure troves of cash -- they enable management to perform more and more acquisitions that I, as a BUY shareholder, would rather see not happen. All of this applies to acquisitions in cash, BTW -- if you have incredibly overvalued stock, and can acquire real value in that weirdly inflated currency (like AOL did to Time Warner a few years ago), hey, more power to you (and then I'd be more worried as a shareholder of SEL!-). But, cash is still worth $1 per buck (despite the Fed's best attempts to the contrary;-), so, as a BUY shareholder, I'd usually rather see that cash in my own pockets, than in those of SEL's shareholders!-)