At least Cerberus won't die hungry.

The hedge fund named after the three-headed dog that guards the gates of Hades in Greek mythology has teamed with Affiliated Computer Services (NYSE:ACS) founder Darwin Deason in proposing a $6.6 billion buyout of the tech services specialist.

That's probably great news for existing shareholders, who stand to cash out at $59.25 a stub -- a 16% premium to Monday's close. I say "probably" because ACS has been down this path before, in December 2005. Back then, Deason killed a rumored $8 billion deal engineered by private-equity giants Bain Capital, Texas Pacific Group, and Blackstone Group.

What's changed? First, Affiliated Computer and some of its top executives, not including Deason, have become caught up in the options backdating investigation. Affiliated Computer, in particular, was one of five singled out by The Wall Street Journal as having taken advantage of low stock prices in the aftermath of the 9/11 terror attacks. Yuck.

Second, private equity deals, which set a record in 2006, are on pace to break that record in 2007 with $104.2 billion worth of mergers and acquisitions activity as of March 13. That's a -- wait for it -- 50% increase over last year at this time.

But let's get back to this deal. First, have a look at Affiliated Computer's cash flows, which have been called "steady and predictable" by others observing this deal:

Metric*

TTM

2006

2005

2004

2003

2002

Rev.

$5,507.4

$5,353.7

$4,351.2

$4,106.4

$3,787.2

$3,062.9

Free
cash
flow

$206.0

$244.2

$486.1

$251.6

$339.6

$227.6

FCF
margin

3.7%

4.6%

11.2%

6.1%

8.9%

7.4%

Cash and invest.

$333.2

$100.8

$62.7

$76.9

$51.2

$33.8

Long-term debt

$2,566.6

$1,614.0

$750.4

$372.4

$498.3

$708.2
Source: Capital IQ, a division of Standard & Poor's.
*Numbers in millions except for FCF margin.

That seems to be a mostly fair assessment. Trouble is, on a percentage basis, far less revenue is flowing into Affiliated Computer's cash coffers today than was the case five years ago. Doesn't that create risk, especially if FCF is also declining on an absolute basis? I'd say so.

Then again, the evidence says that Cerberus isn't as worried about risk as others may be. BusinessWeek reports that, in pledging $14 billion for a 51% stake of General Motors' (NYSE:GM) GMAC financing division, Cerberus accepted terms that every other bank and buyout firm in the running rejected, including control of more than $300 billion worth of leases, loans, mortgages, and insurance policies.

Why, then, should anyone believe that Affiliated Computer is a low-risk deal?

Here's my point. At the closing price of $59.25 a stub, Affiliated Computer is being acquired for 21.8 times trailing normalized earnings. The good news: That's in line with competitors such as Accenture (NYSE:ACN) as well as industry norms. The bad news: It's anything but conservative. Or, for that matter, cheap.

And that's just awful. For when private equity investors pay up for so-so merchandise like Affiliated Computer, the rest of us retail investors pay up for everything that remains, which makes finding bargains harder still. Keep alert, Fool. Dangerous days may be ahead.

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Fool contributor Tim Beyers, who is ranked 1,241 out of more than 24,600 investors in Motley Fool CAPS, didn't own shares in any of the companies mentioned in this article at the time of publication. His holdings can be found at Tim's Fool profile. His thoughts on tech stocks, Foolishness, and investing in general may be found in his blog. Accenture is an Inside Value pick. The Motley Fool's disclosure policy is the only sure bet in investing.