The bidding war between Dell and a private equity firm to acquire Quest Software has some of the company’s customers...
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wondering what will come of their virtualization software investments.
While Dell Inc. has the resources to improve Quest Software Inc.’s virtualization management products, there’s trepidation surrounding the potential takeover. One concern is that Quest’s virtualization management products are too far from Dell’s core competence.
“Going into the utility software market will make them lose focus on what they do well,” said Chadd Warwick, a systems architect for Comprehensive Software Systems based in Golden, Colo. and a Quest customer.
But Quest makes strategic sense for Dell because the company “needs a solid software-management story like HP and IBM,” said a source close to Quest, who requested anonymity.
Quest initially entered into an agreement with investment firm Insight Venture Partners to go private in a transaction valued at $2 billion back in March. Since that time, Insight and other “strategic bidders” unnamed by Quest have leapfrogged one another with higher bids. Twice, Dell has been reported as a strategic bidder.
Most recently, Dell reportedly offered $2.32 billion for Quest, which offers the popular virtualization management products vRanger and vKernel and many other enterprise software offerings.
This bid trumps Insight’s offer last week to pay $2.17 billion for Quest. The private equity and venture capital firm invests mainly in software, and its portfolio is a who’s who of major brands, including Acronis, Tumblr, Twitter, TeamViewer and DataCore Software.
Could Dell improve Quest’s software?
A Dell acquisition could work in Quest’s customers’ favor, as a larger company may improve product development, said Warwick of Comprehensive Software Systems.
His shop has struggled with vRanger’s replication software since version 5.2 – one of the versions delivered by Quest after it acquired the product from Vizioncore in 2008. He has experienced a 50% failure rate on regular replication jobs, which led to more than four and a half hours per day spent “fighting with the software,” Warwick said.
During the upgrade process from VMware Inc.’s vSphere 4.1 to 5.0, Warwick said he experienced several issues, including the amount of scratch space allocated to vRanger appliances, getting replication jobs between version 4.1 hosts to work and finding the right target host.
While Warwick said he has been treated well by Quest’s customer support through all of this, “basically, I have almost lost all faith in the product, and if it keeps going this way, I will be dropping it.”
A Quest spokesperson said vRanger has been met with “overwhelming positive acceptance” from its 40,000 customers.
In any event, Warwick said he’s still not sure that Dell, historically a company more focused on hardware than management software, would be the best fit for taking over Quest.
“I am not sure if they are just after a few, specific parts of the products to tie into OpenManage, but I just can’t see the fit yet,” he said.
Other IT pros worry that a step into higher levels of management might be too far a leap for Dell.
“The shift in paradigm for [Dell] from the traditional box company that just creates hardware and makes money off of hardware to a services company and a cloud company is a pretty significant one,” said Allen Firouz, CEO of Miami-based Venturian Hosting LLC and a user of VKernel’s virtualization management tools.
Both customers wish there was some way that the original companies Quest acquired – Vizioncore for vRanger and vFoglight in 2008, and VKernel in late 2011 -- could be spun back out again.
However, “there is no economic reality” in which that kind of thing could happen, according to Jonathan Eunice, principal analyst for Illuminata Inc. in Nashua, N.H. He said rollups of management software into larger and larger companies are “a fact of life.”
“Manageability innovation is a short shelf-life activity,” Eunice said. “It’s great, people want it, but it has to be bundled into a bigger portfolio.”
Eunice agreed it could be a stretch for Dell to step into a more innovative management space with Quest’s products, but said that’s how Dell has evolved over the last few years. There is precedent for Dell succeeding in other fields in the recent past, such as its acquisition of Perot Systems for professional services in 2009 and its acquisitions of EqualLogic and Compellent in storage management in 2007 and 2011, respectively.
“Whether or not customers feel that Dell will step up quickly enough to satisfy them is a whole different question,” Eunice said. “But IT is just not a place where larger companies can try to do all-organic development anymore.”
Quest officials declined to comment on the bidding process. Dell was also contacted but did not respond.
Quest reported total revenues of $212.2 million for the first quarter of this year, a 12.8% increase compared to the prior year’s first quarter revenues of $188.2 million.
Bridget Botelho, News Director, contributed to this report.