The most serious economic downturn since the Great Depression has made it extremely difficult for all but a few publicly held companies to grow their revenue or their top lines. With the lack of revenue growth for 2009, many have relied on layoffs and other cost cutting measures just to maintain their earnings. Since the outlook for top line growth still looks to be dismal for 2010 and beyond many of the largest well-capitalized companies will be seeking to acquire those companies who are in industries which have been clobbered or have share prices which have not recovered due to a lack of shareholder confidence.

There are currently two industries in the technology sector, Computer Services and Computer Networks, which have plenty of acquisition candidates. Two large companies, Perot Systems (NYSE:PER) and Affiliated Computer Services (NYSE:ACS), both in the Computer Services Industry were acquired at significant premiums by Dell and Xerox respectively. Additionally a member of the Computer Networking Industry, 3 Com Systems, (NASDAQ:COMS), was acquired by Hewlett Packard at a significant premium. The reason why these two industries are very appealing to product driven technology company predators is because they both have a high percentage of revenue out of their total revenue, which is recurring.

According to StockDiagnostics.com the revenue for the Computer Services Industry declined by 18.2% over the latest 12 months and for revenue growth the industry ranked at 192 out of a total of 229 industry groups. A total of 39 out of the industry’s 116 companies or 33% generated an increase in revenue over their latest 12 months. Revenue for the Computer Network Industry declined by 7.5% over its latest 12 months and it ranked at 133 out of a total of 129. A total of 15 out of the industry’s 49 companies or 31% generated an increase in revenue over their latest 12 months.

The dismal revenue growth rates for both industries has kept the share prices low for their respective members and has made them both attractive to poachers because their Free Cash Flow metrics are much more appetizing. Despite the double-digit decline in revenue annualized Free Cash Flow for Computer Services Industry actually increased by 15.5% over the latest 12 months. Meanwhile the Computer Network Industry’s most recent Free Cash Margin of 20% ranked it at 14 out of all 229 industry groups which are monitored by StockDiagnostics.com.

The tastiest fish who are the prime candidates which could be swallowed by the whales include five companies in both industries, which have market caps in between $1.4 Billion and $8.4 Billion. Computer Sciences (NYSE:CS), which has the largest market cap of any of the takeover targets would be an attractive acquisition by IBM or Hewlett Packard because its annualized Free Cash Flow has grown significantly over its last six consecutive quarters. Its Free Cash Flow for its most recent fiscal year was a all time record and up 100% over the last 10 years and its share price is still approximately 50% below its 2000 high. Finally based on its current price its Free Cash Yield of 16.5% makes it very attractive to IBM which has a market cap, which is 20 times larger than it even though IBM’s revenue is only six times larger than Computer Science’s. IBM could pay Computer Sciences shareholders a 40% or $20 per share premium over Computer Sciences’ most recent share price of $55.00 and laugh all the way to the bank.

Another potential low profile suitor who could join the fray is Cognizant Technology Solutions (NASDAQ:CTSH). It is a member of the Computer Services Industry and it has sailed through the recession without skipping a beat. It also has the largest market cap in the industry and its shares trade at a price to Free Cash Flow multiple, which is twice has high as IBM’s and four times greater than Computer Sciences. My favorite in the Computer Services Industry, CACI International (NASDAQ: CACI) would be a tasty morsel for Cognizant to devour because both companies have very similar cultures. Both have bucked economic headwinds and have been able to generate annualized revenue growth for their last ten consecutive fiscal years.

The most vulnerable takeover targets in the two industries that would be tasty treats for the whales are those companies with market caps between $1.0 billion and $10.0 billion, which have positive Free Cash Flow growth over their most recent 12 months and have Free Cash Yields in excess of 8%. They include Computer Sciences (NYSE:CSC), DST Systems (NYSE:DST), CGI Group (NYSE:GIB) and Jack Henry & Associates (NASDAQ:JKHY) who are all members of the Computer Services Industry. If the share prices of these four and CACI International do not go up significantly soon, I expect that they will be scooped by the much larger players in the technology sector who will be desperate to grow their businesses in a weak economy.

There are a number of smaller companies in both industries that have market caps below $1.0 billion, have grown their Free Cash Flow over their latest 12 months and have Free Cash Yields in excess of 8%. Two reside in the Computer Networks Industry. They include NetScout (NASDAQ:NTCT), which is my favorite and Net Gear (NASDAQ:NTGR). Smaller companies in the Computer Services Industry, which meet the qualifications include RCM Technologies, Inc., Intelligroup, Inc., CIBER, Inc., Virtusa Corporation and TechTeam Global, Inc.

Based on their cash flow metrics these small companies are well managed and their shares are all significantly undervalued. They are minnows and thus would not likely be swallowed up by whales such as IBM and Hewlett Packard. However, they could be takeover candidates for the five bigger companies, which are cited in this article assuming that the five do not get acquired.