Tech

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

After several sale attempts in the past decade, Computer Sciences may finally be ripe for a takeover. 

Computer Dealmaking
2015 is a record year for the industry, led by Dell's announced purchase of EMC.
Source: Bloomberg

The technology contractor on Monday officially spun off the business that operates data centers for the U.S. government. That division had been seen as an obstacle for would-be suitors, many of whom are foreign and would have a hard time convincing regulators to let them supply technology to the U.S. army. 

Pre-split, any acquirer would have had to line up a second buyer to take on the government unit.  An acquisition is now a whole lot simpler for the likes of HCL Technologies of India or France's Atos or Cap Gemini. 

Computer Sciences' remaining business provides software, services and data-center infrastructure for consumer, financial and health-care firms, among others. Those operations have had their challenges as the grueling process of restructuring unprofitable legacy contracts overshadowed CEO Mike Lawrie's efforts to cut costs and build out cloud, cybersecurity and big-data offerings. The pain is close to over, though: Susquehanna analyst James Friedman says 2016 may mark the end of revenue declines.

An acquirer could get that turnaround opportunity for a bargain. Computer Sciences is valued at about 3 times its projected Ebitda for fiscal 2016. Few big U.S. IT services company are cheaper, according to data compiled by Bloomberg. That list includes Xerox and Teradata, both potential deal targets in their own right. 

Bargain Bin
Computer Sciences is valued at a discount to other IT services companies.
Source: Bloomberg

HCL Technologies in particular makes a lot of sense as a bidder for Computer Sciences. Coupling the New Delhi-based company's high margins with Computer Sciences' customer base would create a technology-contractor powerhouse.

Then of course, there are private-equity firms. Computer Sciences last year reached out to Blackstone Group and Bain Capital to gauge their interest in a buyout. No deal surfaced, but perhaps they'd be willing to give the new-and-improved Computer Sciences a second look. With the company now slimmed down to about half its former size, it's also an easier sell to financial firms that have been shying away from large deals lately.  

Other suitors may prefer the newly spun-off government business. CACI International, Booz Allen Hamilton and Leidos have all taken a look, Reuters reported in June. 

A Computer Sciences takeover is looking a lot more likely with the company in pieces. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Brooke Sutherland in New York at bsutherland7@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net