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Dell to buy Quest Software for $2.4 billion
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A Dell computer logo is seen on a laptop at Best Buy in Phoenix, Arizona, February 18, 2010.
Credit: Reuters/Joshua Lott
By Nicola Leske and Supantha Mukherjee
Mon Jul 2, 2012 12:05pm EDT
(Reuters) - Dell Inc will buy IT management company Quest Software Inc for $2.4 billion to expand its software business and decrease its dependence on the declining personal computer market.
Dell said on Monday it will pay $28 per share, trumping a bid from private investment firm Insight Ventures, adding that it expects the deal to close in the third quarter of its fiscal year 2013, which started February 4.
Dell sparked a bidding war in June when it offered $25.50 per share for Quest, an enterprise management software maker, topping Insight's initial offer in March of $23 per share.
Despite the bidding war, Brian White, an analyst at Topeka Capital Markets, said Dell paid a reasonable price in line with Street estimates of 17 times 2012 earnings per share and 15 times 2013 EPS.
Dell has said its corporate software and services business will show average annual growth of 10 percent until fiscal 2016.
The Round Rock, Texas-based company has been diversifying its revenue base in the face of weakened consumer demand, giving up low-margin sales to consumers and moving into higher-margin areas, such as catering to the technology needs of small and medium businesses in the public sector and the healthcare industry.
The company has found itself lagging larger rivals such as Hewlett-Packard Co and International Business Machines Corp in the race to become one-stop shops for corporate information technology needs.
But it has broadening its offerings with a string of acquisitions such as IT services company Perot Systems and security company SonicWall.
"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.
CONCERNS OVER GROWTH LINGER
Pressed by an analyst on a conference call after the announcement of the deal, Dell executives declined to give details on the expected return on investment but said the deal would be cash-flow accretive in 2014.
Analysts overall welcomed the deal even as some concerns lingered about Dell's track record to increase earnings.
"Although we like the combination with Quest, we remain on the sidelines due to overall concerns regarding Dell's ability to grow its earnings," Abhey Lamba, an analyst at Mizuho Securities, said in a note.
"We estimate that the deal could add up to 12 cents to Dell's EPS in FY14 assuming conservative synergy levels," he added.
Brian White, an analyst at Topeka Capital Markets, said the acquisition provided a platform to grow the business in the future.
Nevertheless, trends in the PC business and Dell's high exposure to this industry, combined with the risks around public spending and the company's overall track record of low growth remained a concern, White said.
Dell's shares slid about 1.1 percent, or 15 cents, $12.35 in midday trading. Quest, up 43 percent since Insight first made its offer, was off about a penny at $27.79.
(Reporting by Supantha Mukherjee in Bangalore and Nicola Leske in New York; editing by Jeffrey Benkoe and Maureen Bavdek)
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