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As merger Monday approaches I thought it would be fitting to look for some potential small cap takeovers in technology, where M&A has been hot recently, and the probability for deals is very high considering 11 of the top technology firms (Cisco (NASDAQ:CSCO), Hewlett Packard (NYSE:HPQ), EMC, Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), Qualcomm (NASDAQ:QCOM), Apple (NASDAQ:AAPL), IBM, etc.) have a combined $260 billion for a shopping spree.

The first stage of the recovery for these firms was done via cost-cutting initiatives, but as demand still lags the pace of recent years these companies will look to acquisitions for growth, as organic growth options are minimal, and also make acquisitions to optimize operational practices.

Recent deals for Sun Micro (JAVA), Perot Systems (NYSE:PER), and SPSS have paid substantial premiums, in the range of 40 to 80%, so looking for new potential targets can pay off in a big way.

I use a variety of techniques to spot potential targets including valuation, growth, a stranglehold on a type of business, unusual options activity, and strong management. The following is a list of five names that fit into these categories in one or many ways:

1) Ness Technologies (NASDAQ:NSTC): The Israeli IT Services firm specializes in business applications and services, and despite shares being near year highs, the company is cheap at 12.6X earnings and 12.4X free cash flow. Earnings grew at a 250% clip this year and are forecasted to grow another 56% next year. With hardly any debt and $50 million in cash on the book, nearly 20% of the market cap, the company would be immediately accretive to earnings. Hewlett Packard could be interested in Ness Technologies.

2) Compellent Technologies (NYSE:CML): Compellent quietly has a market cap of $532M and is in the data storage sector where rumors are generally focused on names like Seagate (NASDAQ:STX), NetApp (NASDAQ:NTAP), and Commvault (NASDAQ:CVLT) as potential acquisition targets. However, I first came across Compellent when I noticed unusual call buying in out of the money options last week, and discovered that this is one of the fastest growing firms in the storage sector. NetApp's CEO said over the weekend that an acquisition would make sense for the company so this is definitely an industry where we will see consolidation, and I feel Compellent may be the most attractive growth opportunity. IBM would be a potential bidder for Compellent.

3) SeaChange International (NASDAQ:SEAC): With a market cap of $249M the developer of video on demand services is one of the fastest growing technology names in the universe, with earnings growing 231% year over year, and expected to grow 132% next year. At 10.88X free cash flow, 1.24X sales, and no debt the company is also an attractive value play. SeaChange would be an obvious strategic fit for Cisco.

4) SuccessFactors (NYSE:SFSF): Shares are breaking near all time highs and teh company has a 10.4% short float, and is expecting to grow earnings by 266% next year. At a market cap of $860M and a price/cash ratio of 8 the company is well positioned as an attractive target. As firms look to improve worker efficiency and implement cost savings initiatives, SuccessFactors specializes in business optimization with its performance and talent management systems. I could see Taleo (NASDAQ:TLEO) or Oracle (NYSE:ORCL) as a potential suitor.

5) Multi-Fineline Electronix (NASDAQ:MFLX): With a market cap of $678M and consistent earnings growth of 33% for the past 5 years, Multi-Fineline is trading at the valuation of a no-growth firm. The company trades 13.8X forward earnings, PEG of 0.8, 5.3X cash, and 9.4X free cash flow. This is a pure value play as a potential takeover target because I am not exactly sure who would be the acquirer here. The company would be a fine addition to a larger tech player at this valuation.

Disclosure: No Current Holdings of the Above

Source: Small Cap Technology: Five Potential Takeovers