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

In Thursday trading, Quest Software rose over 9% to $26.06, higher than its new buyout offer, signaling trader expectations that a bidding war may emerge.

The disclosure comes at an uncertain time for many software specialists and hardware-oriented giants who are looking to improve their operating margins.

On Thursday, Deutsche Bank analyst Tom Ernst downgraded his price targets for a string of software companies including Adobe (ADBE), Salesforce.com (CRM), VMware (VMW) and Intuit (INTU) on expectations for a slowing of economic growth in the second half of 2012, which will impact business spending on software. Ernst nevertheless points to Salesforce.com, Bazaarvoice (BV) and Impreva (IMPV) as top growth stocks in the sector, with Microsoft (MSFT), Nuance Communications (NUAN) and Guidewire (GWRE ) as the sector's best defensive names.

Meanwhile, the software sector is rife with speculation that tech giants looking to diversify from PC and hardware sales will buy software specialists like Quest and BMC Software (BMC) as M&A heats up in the sector.

For more on software and tech M&A see why Salesforce.com and tech giants are staking M&A bets on Facebook. Also see why a BMC Software hostile investor sheds new insight on whether deals can happen amid a cloud software boom and hardware gloom.

-- Written by Antoine Gara in New York

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