There was much joy in Fooldom last month when Motley Fool Hidden Gems pick TransAct Technologies (NASDAQ:TACT) announced its intent to purchase rival receipt printer maker TPG for $23 million. Not only would TransAct be absorbing and eliminating a competitor, it would also expand its business into new markets -- and do all of it at a bargain price of about one-tenth TransAct's own price-to-sales ratio.

Alas, the deal was too good to be true. A couple of weeks ago, TransAct announced that its due diligence review of TPG had uncovered some issues that TransAct was subsequently unable to work through with TPG's sellers. The deal was called off.

For the past two weeks, Foolish TransAct shareholders have been wondering how this aborted takeover would affect TransAct's quarterly earnings results. The answer came Monday and, compared with the second quarter of 2003, Q2 2004 actually worked out quite nicely. TransAct increased revenues just 10% but transformed that revenue increase into a full 100% growth in diluted earnings per share -- to $0.14 per share.

Still, investors would be wise to put those numbers in the context of a longer time frame. For example, over the past six months, revenues increased not 10% over the first half of 2003, but 33%. The story was similar on the earnings front. Last year, the company made $0.04 per diluted share in its first six months; this year, $0.27. But if the company earned $0.13 per diluted share in the first quarter of 2004, and $0.14 in the second quarter of this year, then sequential earnings growth between the first two quarters was much slower this year than last.

Foolish investors would be well advised to monitor the company over the coming quarters to determine whether this slowdown reflects problems with TransAct's business or just the ordinary costs of conducting due diligence (paying the lawyers and accountants and such). If it's the latter, then TransAct shareholders may continue to be rewarded for sticking around.

As for the aborted merger, well, yes, the price looked good. But clearly TransAct found something wrong with TPG, and in the final analysis, some deals are better left undone. Time Warner (NYSE:TWX) learned that lesson the hard way once upon a time. TransAct shareholders can at least rest assured that they will not be following in Time Warner's footsteps.

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Fool contributor Rich Smith owns no shares in TransAct Technologies or Time Warner.