It's raining money on IT Services

Information technology services companies - the firms that integrate computer systems, host server operations, handle back office processes such as accounting and provide a range of IT consulting - are now tempting targets for large technology equipment companies.

Large hardware companies are hungry for services companies for several reasons. Prices of computers and related equipment are under pressure from cheap producers in low-cost economies such as China, and demand for equipment is sensitive to the health of the economy.

Services, however, are known for producing a steady stream of revenue with fatter profits than technology hardware. In addition, service contracts naturally lead to long-term relationships with a customer and they can give a technology giant the means to pitch its own hardware to a client.

Here's a look at some of the recent deals and their valuations:

• Acquirer: HP; Target: EDS; Valuation=$13.9 bn; P/Sales=0.6; P/E=17; Date=May, 2008
• Acquirer: Dell; Target: Perot Systems; Valuation =$3.9 bn; P/Sales = 1.4; P/E=30; Date=September, 2009
• Acquirer: Xerox; Target: Affiliated Computer Services; Valuation =$6.4 bn; P/Sales = 0.9; P/E=15; Date=September, 2009

Tempting Targets:

• Teradata P/Sales=2.3 P/E=19.4
  
• Concur P/Sales=6.3 P/E=68
• Cognizant P/Sales=2.6 P/E=24
• Informatica P/Sales=3.3 P/E=33
• Computer Sc. P/Sales=0.4 P/E=13
• MicroStrategy P/Sales=1.7 P/E=20

Source: GlobeandMail