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Quest goes private in $2 billion stock buyback

Quest seeks more flexibility, but also a potential buyer

By Joab Jackson
March 9, 2012 06:20 PM ET

IDG News Service - Enterprise software vendor Quest Software is becoming a private company, and is also seeking a buyer, the company announced Friday.

In conjunction with a private equity firm, Quest is buying back all of its public stock for approximately $2 billion, and will continue operations as a privately held company. But the company board has also set aside 60 days to find a buyer that might offer a better deal.

By becoming a private company, Quest will be more flexible and innovative with its product line, said CEO Vinny Smith in a letter to customers.

Quest executives declined to comment on the transaction beyond the material posted on the company's Web site. But public companies that have gone private have often done so to avoid the pressure from stockholders to maximize profits each quarter, in favor of carrying out longer term product development strategies. This might be the case here, analysts said.

The stock will be repurchased for $23 per share in cash, 19 percent more than the closing price of the stock on March 8.

After the transaction, Quest will be a privately held company co-owned by Insight Venture Partners and Smith--who holds about 34 percent of the company--as well as a small number of other Quest executives and outside investors. The company's board of directors has voted for the transaction.

The company will continue to maintain its headquarters in Also Viejo, California, and continue to be led by the same management team, including Smith. Customers should not see any changes, the company promised in an FAQ on the transaction.

The move to go private is, while unusual, not unprecedented, and could provide an operational advantage to the company, said Brian Freed, a financial analyst for Wunderlich Securities who covers the company. Quest and Insight, which has worked with the company for several years, might feel that Quest could produce more revenue than stock market investors estimate, Freed noted.

"Management believes that investors aren't giving them full credit from a valuation perspective for their successes," Freed said.

Quest's stock price has seen roller coaster levels of fluctuation. Over the past year, the company's stock price has varied from $14.61 per share to $26.15 per share, according to Yahoo Finance.

The company boasts 100,000 customers and generated $857.4 million in revenue in 2011, an 11.8 percent increase from the year before. But sales of the company's flagship database tuning software, Toad, have leveled off in the past five years, which has made investors skittish, Freed noted. But Quest has acquired or developed other software products that should keep company sales growing.

The company "has offset losses in database management with a strong portfolio in other markets, such as data protection and identity access management," Freed said. "Wall Street doesn't tend to look as far ahead as one would think."

Reprinted with permission from Story copyright 2014 International Data Group. All rights reserved.
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