Will Dell pass on Quest Software acquisition?

A deal could propel Dell into a top cloud and virtualization management leadership position

If you thought Quest Software was off the market because of the acquisition news announced by private equity firm Insight Venture Partners earlier this year, it turns out that isn't the case. I guess the old adage "it ain't over 'til it's over" holds true once again.

Quest had agreed in March to be acquired by Insight Venture Partners for $2 billion, or $23 a share, a deal that would have taken the company private. However, the deal struck between the two companies gave Quest a 60-day "go shop" period to see if it could find a better offer. If Quest could find a better deal in that 60-day window, it would have to pay Insight Venture a $6.3 million breakup fee; if Quest breaks off the deal for any other reason, it would have to pay Insight Venture $4.2 million. But those payment penalties aren't going to stop Quest from testing the waters.

[ Also on InfoWorld: Virtualization giant VMware acquires desktop management company Wanova to fill out its end user computing portfolio. | And read about what VMware's CTO said about the future of vSphere while at a VMUG meeting in Italy. | Keep up on virtualization by signing up for InfoWorld's Virtualization newsletter. ]

There are reportedly several companies that are interested in or have already made offers to acquire Quest Software. One of the companies rumored to have opened its purse strings was the No. 3 computer manufacturer in the world, Dell.

Dell and Quest have been partnered since 2004, with Quest being one of Dell's top 10 worldwide partners and Dell being one of Quest's top 5 global partners.

If you don't think the partnership is serious, just check out the Quest website. Common priorities with Dell include:

  • Virtualization management for servers and desktops
  • Microsoft-centric projects to simplify operations in Active Directory (AD) and Exchange migrations, single sign-on, compliance, SharePoint, SQL Server, Unified Communications (UC) and System Center
  • Application management for SAP, PeopleSoft, and Java
  • Database management for Oracle and Oracle RAC, SQL Server and My SQL

Sounds like a great fit for an acquisition, doesn't it?

Dell has made no secret of its desire to become much more than a hardware company as it tries to differentiate itself from competitors such as HP and IBM. An acquisition of Quest makes perfect sense for Dell: It would give the company access to provide its customers with offerings in a number of key business areas, including database, server, and user workspace management; data protection and backup; performance monitoring; and identity and access management. It would also immediately pole vault Dell to the front of the line as a virtualization and cloud software leader thanks to the technologies that Quest gained along the way through acquisitions of Vizioncore, Surgient, and most recently VKernel.

This is exactly the type of software stack that a company like Dell needs to differentiate what it is doing from its rivals. At the same time, it would probably make the hair stand up on the back of the neck of VMware execs, who would find themselves competing with Dell in the virtualization management market. Furthermore, by integrating these various solutions, Dell would be able to accelerate private and public cloud adoption within its customer base, which in turn would benefit Dell's core server and storage business.

Rumors spread quickly that a deal by to buy Quest could be hammered out over this past weekend and that something might be announced as early as this week. However, Reuters has reported the deal may have hit a brick wall and talks between Dell and Quest have broken down, although we don't know why those talks have stalled.

It has also been reported that in addition to Dell, Quest has received a few other offers from other companies, but it wasn't clear if any of them beat the original Insight Venture price tag. For any deal to be accepted by Quest, a special committee has to determine that the rival offer was superior to the Insight Venture deal. Quest's board has also retained advisers, including the investment bank Morgan Stanley, to review all offers and advise Quest on its strategic options.

If acquisition talks do not resume, what's next for Dell? If Dell cannot make the Quest numbers work, you can bet they will jump to the next acquisition target on their software wish list. Dell has already acquired five companies this year, including Wyse Technology and SonicWall, and the rumor mill has them reportedly weighing other acquisition options, perhaps even someone like a BMC Software.

Dell has $12.8 billion in cash and equivalents on hand, so things could remain interesting. We might even learn more during Dell Storage Forum 2012 in Boston which is coming up on June 11.

Strap in and stay tuned!

This article, "Will Dell pass on Quest Software acquisition?," was originally published at InfoWorld.com. Follow the latest developments in virtualization and cloud computing at InfoWorld.com.

Copyright © 2012 IDG Communications, Inc.

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