Dell announced definitive agreement to acquire Quest, an IT and systems management software publisher with 2011 revenues of $857 million, approximately 3,850 employees and 60 offices in 23 countries. Under terms of the agreement Dell will pay $28.00 per share in cash for each share of Quest for an aggregate purchase price of approximately $2.4 billion, net of Quest’s cash and debt. The transaction is expected to close in Dell’s third fiscal quarter, subject to approval by Quest’s shareholders and other usual regulatory approvals.
What does $2.4 billion buy?
In February 2012, John Swainson was appointed to serve as President of Dell’s newly minted Software Group. Mr. Swainson was senior advisor to Silver Lake, a global private equity firm and prior to Silver Lake, he was CEO and director of CA, Inc. from early 2005 through 2009. The acquisition of Quest this week is designed to bolster Dell’s software portfolio, and examples cited include:
- Quest One Identity and Access Management solution family added to previously acquired SonicWALL and Secureworks assets creates broad spectrum of security solutions
- Quest’s Performance Monitoring solutions for applications, networks and databases including Foglight for application performance monitoring solution.
- Quest’s Windows Server Management solutions complement Dell Services’ application modernization practice with recently acquired Clerity Solutions and Make Technologies.
- Quest’s Database Management to complement to Dell’s enterprise offering.
Beyond the portfolio
Route to market – Quest’s 2011 results include gross margins of 86 percent and operating margins of 11 percent; the business model required to generate these results is very different from Dell’s traditional one. James Governor highlights one of Quest’s success factors – “Quest quietly excels at selling to practioners; folks that get on the phone, find the tools guy, and sell to them, day in and day out, no airmiles required. If practioners are the new kingmakers, growing in importance, then Dell just bought an important channel.”
Vertical integration – When asked, Michael Dell confirmed Dell’s intention to acquire a number of smaller companies which have developed deep expertise, allowing them to have more detailed conversations and to respond to customers need to simplify their supplier relationships, looking for ‘one throat to choke’. His view that there’s a mixed need for specialisation in technology and generalisation in purchasing plays well to the route to market analysis above.
Services payoff – Quest’s services portfolio was not its primary focus, and if Dell can apply its more sophisticated approach to engineering services options, there will be immediate additional revenue opportunities. But the longer term impact of layering a broader set of software offerings with deeper services capabilities that will create sustainable revenue growth. There is much work ahead.
A well trodden path for both parties
Both companies are accustomed to make acquisitions work. When we first looked at Quest, we reviewed its 25 acquisitions since 1998. Dell’s acquisition team has been no less prolific, and two weeks ago, we discussed how Kace, acquired in 2010, has prospered as part of Dell. We feel comfortable the integration of Quest with Dell will be successful.
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Image credit: Grainy Pencils by Vicky Eastwood