Dell to Buy Quest Software for $2.4 Billion, Ending Bidding War

After months of speculation, Dell is buying Quest, a move that company officials said will create a foundation for Dell’s growing software business.

Dell€™s months-long pursuit of Quest Software is finally complete, with the tech giant announcing July 2 that it is buying the software vendor for $2.4 billion following a bidding war with investment firm Insight Venture Partners.

Quest will become the foundation of Dell€™s burgeoning software business, which itself is a key part of Dell€™s ongoing transformation from a maker of low-margin PCs and servers to an enterprise IT solutions provider.

During a conference call with analysts and journalists, John Swainson, president of Dell€™s Software Group, noted the various areas where Quest€™s software complements what Dell already is doing€”from systems management and data backup and recovery to identity and database management.

€œWe€™re buying this [Quest] business to build a robust [software] business at Dell,€ Swainson said. €œThis is the thing we€™re going to build on.€

Dell, the world€™s third-largest PC maker, for several months had been rumored to be courting Quest, since it was announced in March that the software vendor had accepted a $2 billion offer from Insight Venture. Quest officials were granted a period of time to shop around the offer to determine whether they could find a better deal.

Over the past few weeks, they said that a new bidder had entered the fray, with speculation surfacing that the new bidder was Dell. The PC maker reportedly at first bid $2.15 billion for the 25-year-old company,then $2.32 billion. The $2.4 billion deal has been approved by the boards of directors for each company, according to Swainson. The deal is expected to close in the third quarter.

Dell over the past couple of years has been aggressive in buying companies to build out its IT solutions capabilities, with the acquisitions ranging from storage (Compellent, for example,) to networking (Force10 Networks) to software (AppAssure, Clerity Solutions and Make Technologies).

Roger Kay, principal analyst with Endpoint Technologies Associates, applauded CEO Michael Dell for pushing forward on the transformation of his company despite such challenges as a struggling global economy and slowing sales in PCs.

€œEven in heavy weather, Dell continues to execute against its strategy,€ Kay told eWEEK.

Products from Quest€”a company with 3,850 employees, more than 100,000 customers and revenues of more than $857 million€”will complement many of the capabilities Dell has inherited through other deals, according to Swainson and Dave Johnson, senior vice president of corporate strategy at Dell. For example, Quest€™s Windows Server Management software will dovetail with application modernization capabilities Dell gained through Clerity and Make. Quest€™s Foglight performance monitoring software will mix well with systems management solutions from Dell€™s acquisition of Kace, while Quest€™s Workspace and One user workspace and identity and access management offerings will support what Dell acquired from SonicWall and SecureWorks.

Swainson said Dell will work to keep the Quest business as intact as possible as it integrates into Dell€™s software business. That follows what Dell has done with other companies it€™s bought, according to Endpoint€™s Kay. He compared it with other vendors, such as Cisco Systems and EMC, which tend to buy a company, bring it into the fold and let its products compete with others that already are in-house, then pare away what doesn€™t fit.

Instead, Dell executives determine the type of company it needs to fill a particular hole, negotiate to keep it intact and then integrate it into the business.

€œDell looks at its whole business and says, €˜What don€™t we have?€™€ Kay said. €œConsidering that Dell is building its software business, there€™s a lot they don€™t have.€

He said Quest is €œa large bauble on Dell€™s acquisition necklace, which otherwise has some smaller stones on it.€

While Dell has pushed forward with its strategy to become a more complete IT solutions provider, it hasn€™t been easy. In May, the company reported that revenue for the quarter had fallen 4 percent, and profits fell 33 percent. However, Dell officials noted that revenue for the company's Enterprise Solutions and Services Group grew 2 percent, and now account for 31 percent of Dell€™s revenue and half its gross margin. At the same time, revenue for Dell-owned storage products jumped 24 percent.

During a conference call in May to discuss the quarterly numbers, Brian Gladden, Dell€™s senior vice president and chief financial officer said that the transformation would €œnot be linear€ and that €œthis is a long-term strategy and will take time. €¦ We€™re trying to move as quickly as possible in this transformation.€