Quest Software Inc., a maker of tools to help companies manage computer systems, accepted a sweetened $25.75-a-share bid from Insight Venture Partners and agreed to the addition of Vector Capital to the buyout group.
Insight’s new cash offer of about $2.17 billion topped a per-share bid of $25.50 that Quest received last week. That offer came from personal-computer maker Dell Inc., a person familiar with the matter said yesterday. The deal’s termination fee was increased to $25 million from $6.3 million, California-based Quest said in a statement.
Quest said on March 9 it agreed to be acquired by Insight for $23 a share, and two months later said it received several other proposals that it anticipated would lead to a superior offer. Chief Executive Officer Vincent Smith prefers a sale to Insight over Dell because it would allow him to keep running the company, said the person, who asked not to be named because the negotiations are private. Dell may be willing to boost its bid, said Abhey Lamba, an analyst at Mizuho Securities USA Inc.
“Even if it were to go up to $26, Dell can make the acquisition work,” Lamba said. “We are not sure if there are other factors that are weighing on Quest management’s mind.”
David Frink, a spokesman for Dell, declined to comment.
Quest has advanced 42 percent this year. The shares fell less than 1 percent to $26.50 at the close in New York today, giving it a market value of $2.23 billion.
Quest’s software helps businesses administer databases and servers, as well as back up information and recover lost data. Insight, a New York-based private equity firm, specializes in software and Internet businesses.
Though Dell needs to add systems-management software like Quest’s to keep up with rivals, the company may be limited in how much it can offer because it initiated its first dividend last week, tying up some of its cash, said Shaw Wu, an analyst at Sterne Agee & Leach Inc.
“Dell just committed to pay a dividend,” Wu said. “That restricts what they can do. When you make a commitment to pay a dividend, you have to pay it. Buying Quest is optional.”
Dell, the world’s third-largest PC maker, told analysts at a June 13 meeting it plans to use deals to boost revenue from data-center hardware, software and services by 45 percent to $27.5 billion by fiscal 2016, reducing the company’s reliance on the slow-growing desktop and notebook computer business.
The last time Dell engaged in a public takeover fight was in 2010, when it lost storage company 3Par Inc. to Hewlett-Packard Co., which bought it for $2.35 billion, after the 18-day bidding war tripled the company’s market value.
Michael Dell, founder of the Round Rock, Texas-based company, told Bloomberg News last year that HP overpaid for 3Par, and he made the right decision in dropping out of the process.
Insight and San Francisco-based Vector will each contribute $187 million in equity to finance the acquisition, which will also be funded by a rollover of at least 84 percent of Smith’s existing shares and about $1.2 billion of debt, Quest said in the statement. The contract includes no deadline for potential counterbids.
J.P. Morgan Chase & Co., RBC Capital Markets and Barclays Capital are providing the debt financing, the company said. Morgan Stanley is advising Quest on the deal.
Insight first invested in Quest in 1999 and was the company’s largest institutional investor at the time of its IPO that year, according to a Quest filing at the time. Insight co-founder Jerry Murdock also served on Quest’s board of directors.