Quest Software Bid May Signal M&A Appetite (Update 1)

Updated to reflect added detaill about strategic bidder, closing stock prices

NEW YORK (TheStreet) - After agreeing to a $2 billion private equity buyout offer in March, Quest Software (QSFT) is surging after it revealed that it's received a higher $25.50 a share offer from an unnamed "strategic" bidder.

In March, Quest Software, a maker of enterprise software products, accepted a $23 a share bid by private equity firm Insight Venture Partners, which valued the Aliso Viejo, Calif.-based company at $2 billion. However, on Thursday, Quest said that it received a higher offer during a 60-day "go shop" period to find shareholders a higher takeover bid.

The announcement could signal a bidding war for the software company after previous media reports and analyst comments that companies as large as Dell (DELL) may be interested in acquiring the company.

On Thursday, Quest Software said that it has received a proposal from a "strategic bidder" to buy the company at a near 11% premium, in an offer it said was "not subject to any financing." The disclosure of the bid comes on the expiration of Quest's "go shop" period and now puts Insight Ventures in a position to match or boost the $25.50 bid, or walk away from its March takeover offer in coming days.

"The Company's Board of Directors has not changed its recommendation with respect to the pending transaction with Insight," said Quest Software in a Thursday press release. "Under the Insight Merger Agreement, Insight has certain matching rights, including the right to propose modifications to the terms of the Insight Merger Agreement and related agreements prior to the expiration of a minimum three-business-day period."

After the market close, Reuters reported that Dell is the strategic bidder mentioned in Quest Software's press release.

Morgan Stanley (MS) advised Quest Software during its "go shop" period, which has extended a highly watched private equity buyout drama. With the new bid, Quest Software's takeover premium now stands at over 35% to its shares prior to Insight's March 8 bid, which came at a 19% premium.

Previous to Thursday's disclosure, Bloomberg reported that Dell was discussing a bid for Quest Software; however, subsequent reports refuted the notion of its involvement in the bidding process.

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