(FORTUNE Magazine) – After periods of merger mania, there are always repercussions--mistakes will be made. The shakeout from recent rounds of consolidation has started, and it's not pretty. Two companies once known for their astute dealmaking, insurance company Conseco and toy manufacturer Mattel, have been devastated by bad deals. In mid-April both companies' stocks were off more than 60% from their highs two years ago. The deals have wiped out more than $20 billion of the companies' market caps, and their managements are gone or face credibility questions. Though each announced this month that it will unload its irksome unit, it'll be lucky to get half of what it paid.

These high-profile flops will probably be the first of many. (After recent trouble between the CEOs, some analysts question the strategy behind the Qwest and US West telco pact.) Unable on their own to achieve the aggressive growth Wall Street requires, executives are making bigger and splashier acquisitions. Some companies can make dozens of deals and remain healthy--Internet infrastructure giant Cisco has digested 57 companies without heartburn. But many others falter; their missteps are case studies on how not to acquire.

What went wrong? Conseco, in acquiring Green Tree, and Mattel, in its pact with the Learning Co., sought to broaden beyond their core businesses. That's not a bad strategy if investors understand the potential synergies. Conseco had purchased numerous small life and health insurance companies, but its $7.6 billion acquisition of Green Tree in 1998 was markedly different; Green Tree made high-interest consumer loans for mobile homes. CEO Stephen Hilbert tried to tout cross-selling opportunities, but he also let investors know that Conseco wouldn't make any more acquisitions. To investors, the announcement signaled an abrupt strategy shift. "Even experienced acquirers will fail if they deviate from the business model that made them successful," says Mark Sirower, an M&A adviser at the Boston Consulting Group.

Instead of continuing to court investors, Conseco and Mattel ignored them. The day the Green Tree purchase was announced, Conseco's stock dropped 15%. "CEOs ought to listen to those bells ringing in their ears," says Lawrence J. White, professor of economics at NYU's Stern School of Business. "There's an awful lot of evidence that says the initial stock-price reaction to a deal has a lot of validity and ought to be heeded by management."

Because of the speed with which both transactions were made, investors wondered whether the companies had done enough research. Conseco paid a hefty premium for Green Tree, an outfit that had been accused of questionable accounting methods. "[Conseco] got rushed, and the market knew right away that they had way overpaid," says Colin Devine, an analyst at Salomon Smith Barney. Investors were already souring toward Mattel in late 1998; when the company announced its $3.6 billion deal, they panicked over the price and at talk that the software company had some aggressive accounting practices. Learning Co. was supposed to add $50 million to Mattel's 1999 earnings. Instead, it shaved $206 million.

As the companies try to rectify their mistakes, few believe Conseco or Mattel will get much for their orphans. More seriously, there is growing concern that the companies themselves may not survive. Talk about a killer deal.

--Julie Creswell