Updated with analyst comments and additional data throughout
NEW YORK (
) -- Struggling PC-maker
has agreed to buy business software specialist
for $28 a share in cash -- or roughly $2.4 billion -- as it tries to reposition away from the shrinking personal computer market and into tech business services and analytics.
The bid by Dell confirms speculation that it was mulling a bid for Quest Software after the enterprise software specialist previously agreed to a $23 a share buyout offer by private equity firm and large shareholder
Insight Venture Partners
, which valued the Aliso Viejo, Calif.-based company at $2 billion.
However an unnamed "strategic bidder" during Quest Software's 60-day "go shop" period - presumably Dell -- raised the stakes and started a bidding war with Insight that's now pushed Quest Software's takeover price up by over 20%. Dell's secrecy in the process comes after it lost a heated 2010 bidding war with
, which nearly tripled the date center software maker's market value.
Monday's deal confirms previous
reports that Dell would make a bid on Quest Software, in a move to bolster the world's third largest PC makers newly formed Software Group.
In a statement, Dell said that the acquisition will fit into its software unit, in an expansion of Dell's software capabilities in systems management, security, data protection and workspace management. Dell also said that the deal will complement its existing scalable business services, which include PC hardware, networking equipment and data storage services.
Already, Dell has been a serial acquirer in 2012, cutting a flurry of deals for IT services specialists like
. In particular, Dell highlighted Quest Software's strategic relevance to its existing security and applications monitoring and modernization units.
Monday's deal may be one of its most important software and services transformation steps yet. The deal is likely to use all of Dell's domestic cash balance, notes ISI group analyst Brian Marshall.
"We believe DELL will follow a similar playbook to past acquisitions by leveraging its large PC/server installed base, global distribution and brand to extract value from the acquisition," wrote Marshall in a note to clients. He estimates the acquisition will add 6 cents to Dell's calendar 2013 earnings. Still, Marshall maintains a neutral rating Dell, citing concerns that earnings per share and operating margin estimates are too high for the Round Rock, Tx-based company.
"The addition of Quest will enable Dell to deliver more competitive server, storage, networking and end user computing solutions and services to customers," said John Swainson, president of Dell Software Group.
For more on Dell M&A, see why the company's unheralded M&A is moving it beyond the
The most important investment theme around the Dell story is the Company's continued migration to higher-margin, enterprise products and services that are focused on serving the next generation data centers that are paving a path into the cloud," wrote Tokepa Capital Markets analyst Brian White in a Monday note to clients. White adds that while recent deals for Perot Systems, WonicWALL and Compellent strengthened Dell's IT services, security and storage businesses respectively, Quest Software is the company's biggest push in software and represents a platform to grow the business to $2 billion, as management has forecast.
As of 2011, Quest earned $857 million in revenue at an operating margin of 11%. With Quest, Dell will add the company's 1,500 software sales reps and 1,300 developers to its existing software business that earned $1.2 billion in revenue in 2011.
advised Quest Software during its "go shop" period, which has extended a highly watched private equity buyout drama. With Dell's bid, Quest Software's takeover premium now stands at over 50% to its shares prior to Insight's initial $23 a share March 8 bid.
In Monday trading, Quest Software fell over 1% to $27.75, while Dell shares rose under 1% to $12.55. year-to-date, Dell's shares are off nearly 15% on falling PC orders and weaker than expected earnings.
Dell's software push may come at turning point for the sector. In a Monday sector overview, Jefferies analysts cut expectations for
, citing slumping IT spending in Europe and the U.S.
In June, Deutsche Bank analyst Tom Ernst downgraded his price targets for a string of software companies including
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,
as top growth stocks in the sector, with
as the sector's best defensive names.
Still, 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
as M&A heats up in the sector.
For more on software and tech M&A see why Salesforce.com and tech giants
. Also see why a BMC Software hostile investor sheds new insight on whether deals can happen amid
-- Written by Antoine Gara in New York