2nd UPDATE: Vector Joins Insight to Sweeten Quest Software Bid

--Private equity firms plan offer financed by cash, debt, CEO's shares

--Offer of $25.75 a share trumps $25.50 per-share bid from undisclosed party

--Quest isn't required to wait for higher offer

(Adds comment from Dell spokesman, additional details)

 
   By Drew FitzGerald 
 

Insight Venture Partners added fellow private-equity firm Vector Capital to its effort to take Quest Software Inc. (QSFT) private, raising the data-management company's latest buyout bid to about $2.17 billion.

The $25.75 per-share offer tops a $25.50 bid an undisclosed party made for Quest last Thursday, as well as Insight's original March offer of $23 a share.

Reuters last week reported Dell Inc. (DELL) was the undisclosed bidder competing with Insight to buy Quest, which offers a range of software for databases, servers, operating systems and virtual environments that analysts say fit with Dell's strategic position.

A Dell spokesman declined to comment.

The two buyout firms plan to finance the deal with $187 million apiece in cash, along with a rollover of at least 84% of Chairman and Chief Executive Vinny Smith's existing shares and about $1.2 billion of debt financing.

Quest also agreed to increase the termination fee to $25 million from $6.3 million if the go-private offer fails. The company Tuesday said the undisclosed bidder's offer is no longer superior to Insight's offer.

Smith, who recused himself from the board vote to deem the offer a superior proposal, would remain chief of the software company after the buyout, a person familiar with the matter confirmed.

Quest isn't required to wait to entertain a higher offer under the latest agreement, the person said, though shareholders must still bless the deal.

Shares slid 1.4% to $26.15 in recent after-hours trading, suggesting shareholders were hoping the latest bid would go higher. The stock has climbed 43% since the start of the year.

Quest, which has more than 100,000 customers, has faced increased competition from companies that build enterprise systems for which it traditionally provided software, such as Oracle Corp. (ORCL), which has been building its own tools to manage systems.

Write to Drew FitzGerald at [e-mail]

-Nathalie Tadena contributed to this article