Shaun Rein provides some sound advice regarding how to approach mergers and acquisitions in his column over at Forbes.com.
I would add a few additional pieces of advice. First, be aware of how sensitive valuations are to a few assumptions. Slight changes in growth rates, discount rates, and the like can have a profound impact. Therefore, it's especially important to identify who is driving those assumptions. If the advocates for the deal control the assumptions, they control the valuation... and thereby can push through bad deals. Too many times, the bankers have a powerful influence on those assumptions, which is problematic because they have a financial interest in seeing the deal completed.
Second, the people who are going to implement the deal (i.e. the integrators) need to be involved in the decision process. That not only helps scope out a deal effectively, but it also builds buy-in and commitment that will be helpful in making the integration process succeed.
Third, don't leave due diligence to the financial experts. You need to also perform due diligence from an operational perspective. You want to not only know about the target firm's financial condition, but also the condition of their fundamental business functions.
Finally, don't let deal fever, momentum, and sunk costs take over an acquisition decision process. It's easy to get swept up in the moment and find yourself going down a path where you find it very hard to turn back.