Arik Hesseldahl

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Dell Wins $2.4 Billion Bidding War for Quest Software

After more than a month of back-and-forth negotiations, Dell today announced that it had landed the reluctant fish called Quest Software.

Dell will pay $28 a share for Quest — about $5 a share more than Quest was valued at back in May, when all this started — for a total of $2.4 billion.

It all began when Quest agreed to go private after a bid of $23 a share from Insight Venture Partners, the private equity firm that had helped Quest go public several years back. Dell stepped into the mix during a go-shop period meant to entice a superior offer for the benefit of Quest shareholders. The talks were said to have broken off at the start of June.

Except that they really didn’t. Reports emerged that talks for Quest were back on, with an unnamed “strategic bidder” offering $25 a share, which Quest mentioned in a mysterious press release on June 14.

Not to be outdone, Insight set about raising more money, and found a partner in private equity firm Vector Capital. Together, they offered $2.2 billion for Quest. Dell — still playing the role of the masked “strategic bidder,” came back and offered $2.32 billion on June 25.

Unless I missed it, I didn’t see a counteroffer from team Insight, so, for some reason, the offer price rose by another $300 million and change from what had last been reported.

Why all the fuss over a company no one has ever heard of? Well, Quest has been around for a long time. It’s a 25-year-old company that last year reported $857 million in sales, and a $44 million net profit. Its specialty is creating management systems for enterprise software. One of its main products is Toad, which automates a lot of maintenance tasks and is widely sold against Oracle databases. There are other versions of it that work with Sybase and SQL Servers.

Its size and specialty put Quest right in the wheelhouse of the sort of things that Dell is trying to build and buy as it seeks to transform itself into an enterprise hardware, software and services concern, with a smaller strategic emphasis on its older PC business. By at least one metric, that strategy is working — a little. Dell’s consumer PC business, for which it is best known, amounts to about one-fifth of its revenue, while its enterprise-oriented businesses amount to about 50 percent. The wrinkle is that the enterprise part is mostly PCs.

Quest is, by far, Dell’s biggest acquisition in recent memory. In March, Dell spent $1.2 billion for SonicWall, a privately held security gear concern. In April, it went on a bit of an M&A bender, taking out three companies in as many days. First was privately held Wyse Technology, a maker of thin clients — now fashionably called “virtual desktops” — in a deal estimated to have been worth about $400 million. Dell followed that with deals for Make Technology and Clerity Solutions.

Dell shareholders, who initially seemed not to like the company’s acquisitive stance regarding Quest, aren’t bolting yet. With about 20 minutes remaining before the markets open for trading, Dell shares are up by about four cents, or about one-third of 1 percent. Not exactly a ringing endorsement.

Update: Perhaps I spoke too soon. It’s 9:33 am in New York and the markets are open; Dell shares have opened down 15 cents, or more than 1 percent, and are trading at $12.36. I guess shareholders didn’t like this deal, after all.

Dell can certainly afford Quest. It has $13.7 billion in combined cash and short-term investments on the balance sheet. The problem is that Dell has also started paying a dividend amounting to 8 cents a share, and some analysts have worried that will put too much demand on the cash reserves it needs to continue buying companies.

The announcement is below:

Dell to Acquire Quest Software

Award-winning Quest bolsters Dell competitive position in delivering end-to-end IT solutions.
Strong strategic fit with Dell’s software group; extends existing capabilities in systems management, security, data protection and workspace management.

ROUND ROCK, Texas & ALISO VIEJO, Calif.–(BUSINESS WIRE)–

Dell and Quest Software today announced they have entered into a definitive agreement for Dell to acquire Quest, an award-winning IT management software provider offering a broad selection of solutions that solve the most common and most challenging IT problems.

Dell recently announced the formation of its Software Group to build upon its existing software expertise. The Dell Software Group will add to Dell’s enterprise solutions capability, accelerate strategic growth and further differentiate the company from competitors by increasing its solutions portfolio with Dell-owned intellectual property.

Quest’s family of software solutions and key technologies are strongly aligned with Dell’s software strategy. The acquisition provides critical components to expand Dell’s software capabilities in systems management, security, data protection and workspace management. In addition, Quest’s software portfolio is highly complementary to Dell’s scalable design approach to develop solutions that scale with customer needs. Some examples include:

The Quest One Identity and Access Management solution family adds to Dell’s very strong set of security assets with SonicWALL and Secureworks, creating a comprehensive set of security solutions to address important customer needs.
Quest’s Performance Monitoring solutions for applications, networks and databases address a rapidly growing need for our customers. Industry analysts have consistently ranked Quest Foglight as a leading application performance monitoring solution. Businesses of all sizes are looking to reduce their IT complexity and automate workloads for their IT departments. Customers worldwide leverage Foglight to continually monitor their IT environments, proactively identifying and remedying performance issues before they become bigger problems.
Quest’s Windows Server Management solutions complement Dell Services’ rapidly growing application modernization practice with recently acquired Clerity Solutions and Make Technologies.
Effective database management is critical to the successful operation of most organizations. Quest’s Database Management capabilities offer a strong complement to Dell’s enterprise offering. Today, millions of DBAs, developers, and analysts around the world rely on Quest’s database management tools to simplify their work.

Quest has a diversified software portfolio and generated $857 million in global revenue based on its fiscal year 2011 results at gross margins of 86 percent and operating margins of 11 percent. Quest supports heterogeneous and next-generation virtualized environments across leading platform vendors. The addition of Quest, including its 1,500 software sales experts and 1,300 software developers, to Dell’s existing software expertise in systems management, security and cloud integration, is the foundation of a $1.2 billion software business, based on annual revenue.

Quest, established in 1987, is headquartered in Aliso Viejo, Calif. and serves more than 100,000 customers worldwide, including 87 percent of the Fortune 500. The company has approximately 3,850 employees and operates 60 offices in 23 countries.

Quotes

“The addition of Quest will enable Dell to deliver more competitive server, storage, networking and end user computing solutions and services to customers,” said John Swainson, president, Dell Software Group. “Quest’s suite of industry-leading software products, highly-talented team members and unique intellectual property will position us well in the largest and fastest growing areas of the software industry. We intend to build upon the strong momentum Quest brings to Dell.”

“Clearly, Dell’s distribution, reach and brand are well recognized in the industry. Combine that with Quest’s software expertise and award-winning systems management products and you have a very powerful combination for our customers and partners,” said Vinny Smith, chairman and chief executive officer of Quest Software. “With this transaction, Quest’s products and employees become the foundation for Dell’s critical software business.”

A financial analyst call with Dave Johnson, senior vice president, Dell Corporate Strategy; John Swainson, president, Dell Software Group; Brian Gladden, chief financial officer, Dell; and Vinny Smith, chairman and chief executive officer, Quest Software; will be webcast live today at 8:45 a.m. Central Time and archived at www.dell.com/investor

Terms and Closing

Under terms of the agreement, approved by the boards of directors of both companies, Dell will pay $28.00 per share in cash for each share of Quest for an aggregate purchase price of approximately $2.4 billion, net of Quest’s cash and debt. The transaction is expected to close in Dell’s third fiscal quarter, subject to approval by Quest’s shareholders and customary conditions.

About Quest

Established in 1987, Quest Software (QSFT) provides simple and innovative IT management solutions that enable more than 100,000 global customers to save time and money across physical and virtual environments. Quest products solve complex IT challenges ranging from database management, data protection, identity and access management, monitoring, user workspace management to Windows management.

About Dell

Dell Inc. (DELL) listens to customers and delivers worldwide innovative technology, business solutions and services they trust and value. For more information, visit www.Dell.com.


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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik