Did Dell buy a dud?

In the past few weeks, I certainly have an axe to grind with Dell, notably their acquisition of Quest Software. I have been full of praise of how Dell was purchasing the right companies in the past and how the companies Dell acquired were important chess pieces that will propel Dell into the enterprise space. Until now …

Since its first significant acquisition into the enterprise with EqualLogic in 2008, there were PerotSystems, Kace, Scalent, Boomi, Compellent, Exanet, Ocarina Networks, Force10, SonicWall, Wyse Technologies, AppAssure, and RNA Networks. (I might have missed one or two). To me, all these were good buys, and these were solid companies with a strong future in their technology and offerings. Until Dell decides to acquire Quest Software.

At the back of my mind, why the heck is Dell buying Quest Software for? And for a ballistic USD2.4 billion! That’s hell of a lot of money to spend on a company which does not have a strong portfolio of solutions and are not exactly leaders in their respective disciplines, barring Quest’s Foglight and TOAD. A quick check into Quest’s website revealed that they are in the following disciplines:

 

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Quest Software going private

Just a couple of days ago, Quest Software Inc, got an offer from Insight Venture partners. The offer of USD$23 per share will bring the offer close to USD$2 billion, and the company will be taken private.

This is the second big-name taken off and going private. The first one being BlueCoat after it has agreed to be take private for a price of USD$1.3 billion by Thoma Bravo, a private equity firm.

Quest Software is the maker of the famous Oracle performance analyzer, Toad and also has acquired smaller companies like Bakbone and Vizioncore in the past, but this around it has become the acquisition target.

This brings a very interesting fact, that, more and more public companies are going private. Here in home ground, the largest mobile carrier, Maxis, went private a few years ago.

Why? Typically most companies go private when the shareholders think that the stock market does not give the company share the right value. The market perhaps has stagnated and not growing. However, BlueCoat and Quest Software are not in a stagnant market. Security, application acceleration, data protection and data analytics are big market in the cusp of exploding growth. Then why are these companies going private?

Here are a few possible reasons (my take):

  1. With the buy-out, these companies can be free from the encumbrances that come with being a public company. Some of them include lengthy approvals from shareholders, board of directors and regulators, which could slow the decision-making process
  2. These new owners are looking at plans to expand into markets that they can’t get to globally without being scrutinized by the regulators and certain shareholders. Going private mean that they could offer their services across the globe in the cloud space, with lesser restrictions and prohibitions.
  3. They want to be really aggressive and being public just bogs them down.
  4. The new owners plan to “shoeshine” these lackluster companies and hoping to sell them out again to get a huge profit.

Thoma Bravo, for example, already has several companies in its security portfolio - Entrust, Hyland Software, SonicWall and TripWire and the BlueCoat acquisition just adds more to its “great view of security“. Thoma Bravo, as described, is a technology investment firm specializing in revamping and growing established companies.

Insight Venture Partners (IVP), too, is in the business of private equity and venture capital, and has invested in companies such as Solarwinds, Acronis and DataCore.

This Quest Software acquisition could IVP’s biggest yet, but the question remains. Why?