UPDATE: Quest Gets Superior Bid to Insight Venture's Offer

--Quest Software reports a superior buyout offer to Insight Venture's bid

--Quest doesn't name new bidder, but it is thought to be Dell

--CNBC says Insight is looking to raise its offer

(Adds details about the new bid, Dell and the CNBC report throughout.)

 
   By Drew FitzGerald 
 

Quest Software Inc. (QSFT) said it received a superior buyout offer that values the company at up to $2.15 billion, trumping a previous $2 billion bid from Insight Venture Partners to take the company private.

The maker of database-management software said Thursday that an undisclosed bidder offered to pay $25.50 a share in cash, above the offer of $23 a share from Insight in March.

Quest didn't name the potential acquirer other than to call it "a strategic bidder," which suggests it is likely a fellow technology company, rather than another private-equity firm. Dell Inc. (DELL) has been rumored to be the undisclosed bidder, although a Dell spokesman declined to comment Thursday.

Insight has at least three days to match the bid. A representative from the New York private-equity and venture-capital firm wasn't immediately available for comment, but CNBC reported Insight is looking into raising its offer.

Quest shares rose 9.5%, to $26.12, on hopes for a higher offer.

If Insight doesn't modify its deal, which included keeping Vinny Smith as chief executive, Quest will terminate the Insight agreement. Insight is entitled to a $6.3 million breakup fee if its go-private offer fails.

If the Quest shareholders who backed the Insight deal decide not to support the new offer, Quest has agreed to grant the undisclosed bidder an option to buy about 20% of its stock outstanding, as well as a breakup fee of up to 3.5%, depending on certain circumstances.

Last month, Quest said it received multiple alternative proposals during the 60-day "go-shop" period, but the company hadn't determined then if any of the bids were superior to Insight's offer.

Wunderlich Securities analyst Brian Freed said Dell has seemed "the lead contender" in the race to buy the company because Quest would expand the computer and hardware maker's software offerings without the overlap that other potential suitors would face.

Dell shares slid one cent, to $12.27.

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 Corp. (ORCL), which has been building its own tools to manage systems.

The Aliso Viejo, Calif., company has responded to the increased competition by making acquisitions, which has helped grow its revenue but contributed to Quest's earnings getting cut in half last year.

At the current price, Quest can be viewed as expensive. The latest offer values Quest at 15.5 times future earnings, which is a higher valuation than those of Microsoft Corp. (MSFT), SAP AG (SAP.XE) and Oracle, even though the three larger software companies are expected to report 2013 sales growth equal to or better than Quest's.

--Melodie Warner contributed to this article.

Write to Drew FitzGerald at [e-mail].