Dealmakers must be forgoing Christmas parties, because the private-equity game just doesn't want to stop. Last week, for example, we saw yet another major deal: the $1.6 billion purchase of Tommy Hilfiger
Also last week, The New York Times reported that there's another big deal in the offing, this one concerning Affiliated Computer Services
According to Dealogic, 2005 has seen about $493.8 billion worth of private-equity deals. What's happening? Well, private-equity firms have huge amounts of money to work with, and companies are becoming more willing to sell out for a number of reasons -- including lack of coverage from Wall Street analysts, soft stock prices, and, of course, compliance costs associated with Sarbanes-Oxley.
Founded in 1971, Affiliated Computer Services is now a major information-technology outsourcing firm for businesses and governments. Essentially, the company manages such things as HR, finance, accounting, and payment services.
Traditionally, tech companies have been off-limits for private-equity firms. But that situation is starting to change. For example, this year, we saw the leveraged buyout of SunGuard for $11.4 billion -- by many of the same companies rumored to be involved in the ACS purchase.
Then again, a company like ACS has certain attractions for private equity-players. "Affiliated Computer Services has long-term contracts with recurring, predictable cash flows," says Murray Rudin, a partner with the private-equity firm Riordan, Lewis, & Haden. "This is something banks can certainly lend against."
Affiliated Computer Services has a strong business. In the third quarter, it posted a 25% increase in revenues to $1.3 billion. Cash flow from operations was $108 million. Its customers include big players such as Hallmark, United Technology
On the rumors of the deal, Affiliate Computer Services' stock increased 5% to $61. However, buying the stock now is really a speculation. Private-equity deals can fall apart, as we saw recently with the aborted deal for Albertsons
So it seems, as of now, that investing in Affiliated Computer Services is for the pros who are willing to take a gamble.
Fools, now is the time to open your hearts and wallets to worthy causes! Please support our five Foolish charities at www.foolanthropy.com.
Fool contributor Tom Taulli does not own shares mentioned in this article.