Insight Venture Partners not only raised its offer in the battle
for Quest Software Inc. (QSFT), but the buyout firm also increased
the stakes for the other party competing to purchase the maker of
database-management software.
Specifically, Insight's offer to make Quest Software a private
company is now valued at $2.17 billion, up from $1.94 billion in
March, and includes a breakup fee nearly four times higher than
what was provided in the firm's previous offer. Insight's new bid
was also deemed superior by Quest's board.
It was unknown how the competing bidder--which hasn't been named
officially but is computer maker Dell Inc. (DELL), according to a
person familiar with the situation--would react to Insight's higher
offer. A Dell spokesman declined to comment on anything related to
Quest, but observers expected the company to stand down.
"Dell has walked away from bidding wars in the past," Wunderlich
Securities analyst Brian Freed said. "They don't let pride get in
the way of common sense."
The fight over Quest echoes a similar battle Dell waged for
high-end data-storage maker 3Par Inc. in 2010. Dell eventually
bowed out after Hewlett-Packard Co. (HPQ) bid $1.6 billion for the
company, which makes rapidly accessible storage drives that allow
corporations to run more efficient databases.
Insight's latest offer, which now includes fellow private-equity
firm Vector Capital, values Quest at $25.75 a share, higher than
the offer of $25.50 a share last week from Dell and above Insight's
original proposal of $23 a share in March.
Quest shares on Wednesday recently slid a penny but, at $26.51,
was still above the latest offer, suggesting some investors are
still hoping for a counteroffer.
Dell can afford to pay more for the company, but it would be
costly. Any new offer from the PC maker not only has to be higher
than $25.75 a share, but it also has to account for the $25 million
break-up fee, which is greater than the $6.3 million promised in
Insight's earlier offer.
Plus, at the current price, Quest can be viewed as expensive.
The latest offer values Quest at 15.6 times future earnings, which
is a valuation nearly 50% higher than that of Microsoft Corp.
(MSFT) and Oracle Corp. (ORCL). And Quest isn't seen as a
fast-growing company, with sales projected to rise a modest 9% this
year and 6% next year to $990 million.
Quest, which has more than 100,000 customers, provides software
associated with infrastructure hardware, such as databases,
servers, operating systems and virtual environments. The company
has faced increased competition from companies that build
enterprise systems for which it traditionally provided software,
such as Oracle, which has been building its own tools to manage
systems.
The Aliso Viejo, Calif., company has responded to the increased
competition by making acquisitions. The extra business has grown
revenue, but the costs surrounding the deals have contributed to
Quest's earnings getting cut in half last year.
Quest Chairman and Chief Executive Vinny Smith has been a
constant presence in most of the software developer's 25-year
history and featured prominently in its latest go-private offer.
Smith would keep most of his 34% stake in Quest under the deal with
Insight and Vector, along with executive control of the company he
helped lead through its 1999 initial public offering.
--Anupreeta Das contributed to this story
Write to Drew Fitzgerald at andrew.fitzgerald@dowjones.com