I disagree (at this point). Firms should invest where there is...

I disagree (at this point). Firms should invest where there is the greatest potential gain within their core competence. Simple idea that many seem to forget (including one recent Motley Fool writer).

This principle means that GEM should acquire AFJ as long as it is priced much less than GEM's valuation as well as less than long term market valuation (which it is, according to various sources). Actually more complex than this, because the valuation also needs to recognise value of related factors. Two related factors that allows AFJ to carry some premium is that (a) AFJ has a lower per unit cost to discover, evaluate, and buy the asset versus buying a single childcare centre, and (b) acquiring AFJ may reduce a competitor that apparently has been overpaying for centres. The Sterling acquisition last year may have been higher priced than a single centre for the same reason.

This principle also cast doubt on the recently hyped fear and loathing of "roll-up" investments. Growing by acquiring small existing businesses can be a GOOD THING if (a) those acquisitions are valued much less than the acquire's valuation and less than the asset's long term market valuation, and (b) alternative investments -- such organic growth by building your own childcare centres -- are more expensive and/or risky.