UPDATE: Vector Joins Insight to Sweeten Quest Software Bid

--Private equity firms plan debt-financed offer to take firm private

--Raised offer trumps $25.50 per-share bid from undisclosed party

--CEO Vinny Smith would roll over most personal stock under proposal

(Updates with background on undisclosed bidder, Vector Capital's role in proposal)

 
   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 wasn't immediately available for comment.

The two buyout firms plan to finance the deal with $187 million apiece, 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.

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, according to a securities filing.

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.

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.

Shares slid 1.4% to $26.15 in recent after-hours trading, suggesting shareholders were hoping for an even higher offer. The stock has climbed 43% since the start of the year.

Write to Drew FitzGerald at [e-mail]

--Nathalie Tadena contributed to this article