Dell Quest Software

The key players involve a Quest special committee, Quest’s own Vincent Smith, and a lengthy list of lawyers and financial advisors — particularly Morgan Stanley.

Back in August 2011, Quest’s Vincent Smith held information discussions with Insight Venture Management. That set off a nearly year-long M&A process. And it ultimately led Quest Software into Dell’s awaiting arms.

Now, the blow-by-blow…

Before Dell… There Was Insight

Aug. 24, 2011: Quest Software’s Smith meets with Insight Venture Management, and Insight expresses interest in buying Quest Software.

September 19, 2011: Quest Software’s board discusses Insight’s interest in the company. Quest sets up a special committee to evaluate the pros and cons of such a transaction. Insight and Quest sign a non-disclosure agreement (NDA), allowing Insight to review Quest’s business more closely.

September 19-30, 2011: Insight conducts preliminary due diligence of Quest Software. Insight confirms that it is preparing an offer for the company.

September 30-October 3, 2011: Quest Software’s special committee interviews law firms and investment banks for guidance. The committee retains Potter Anderson & Corroon as independent counsel and Morgan Stanley as its financial advisor.

October 18, 2011: Quest, Potter Anderson and Morgan Stanley officials meet to discuss the potential sale and likely timing of such a transaction. Morgan Stanley begins to gather financial projections for Quest’s fiscal year 2012.

The First Offer: $20 per share

October 19, 2011: Insight says an offer for $20 per share is on the way. The offer involves certain financing commitments that require Smith to roll over “a significant portion” of his stake in Quest Software.

October 21, 2011 to October 28, 2011: Quest communicates with Willkie Farr & Gallagher LLP, counsel to Insight, regarding the timing of delivery of a written proposal.

November 2, 2011: Quest Software’s special committee finalizes its engagement of Morgan Stanley as its financial advisor. Quest Software CFO Scott Davidson is pulled into the conversation.

Seeking Alternative Offers?

After the November 2 Board Meeting, Quest advisors and executives discuss the company’s projected results for Q4 2011 and fiscal year 2012. The special committee begins to explore ways to bring alternative bidders into the process.

Nov. 7, 2011: Insight offers $20.50 per share to buy Quest.

Nov. 8, 2011 to Feb. 1, 2012: Negotiations and discussions continued between the parties, and Insight delivers further proposals ranging from $21.50 to $22.25 per share. Quest also considers a standalone plan, a stock buyback or dividend, a strategic merger, a sale of the company to a strategic acquirer, or other financial strategies.

Some key provisions within those weeks of negotiations:

Dell Says Yes… Then No

Feb. 8 to Feb. 11: At least three other potential bidders — known as Financial Sponsor A, Financial Sponsor B, and Dell — are now at the table. Also, Quest CEO (Garn) resigns for health reasons but remains vice chairman. Smith moves into Quest’s CEO post.

Feb. 16: Dell says it’s not interested in buying all of Quest Software. But Financial Sponsor A and Financial Sponsor B remain at the negotiating table, as does Insight. (For the sake of simplicity, Financial Sponsor A and Financial Sponsor B are not mentioned in the rest of this day-to-day recap because they didn’t buy Quest.)

Feb. 16 to March: Discussions and negotiations continued between the various parties.

Quest Tells Insight: Offer More

March 2: Insight offers $22.50 per share again, this time with some revised draft debt equity commitment letters.

March 3: Another bidder emerges but ultimately decides not to enter into an NDA with Quest.

March 4: Quest tells insight that the potential sale price must involve an offer of $23 per share.

March 5: Insight agrees to offer $23 per share.

March 8: Quest’s special committee recommends Quest’s board accepts Insight’s buyout offer.

March 9: Quest and Insight announce their M&A deal but it includes that “Go Shop” period, meaning that there’s time for more bidders to enter the picture — setting the stage for Dell to enter the action later.

17 Potential Buyers Emerge

During the 60-day “go shop” period beginning on March 9, Morgan Stanley contacted 55 parties, including 38 potential financial sponsors and 17 potential strategic buyers, and had circulated 23 NDAs, 17 of which were executed by potential  buyers. Nine parties participating in the “go shop” process engaged in meetings with Quest.

Here Comes Dell… Eventually

April 5: Dell inks an NDA with Quest, and Dell holds meetings with selected Quest executives.

April 23: Final bids are due. Some bids come in… but not from Dell. Dell expressed verbal interest in Quest, but as of this point has not submitted a bid.

May 6: Dell submits a written proposal to acquire Quest for $25.00 per share in cash. Dell also requests additional source code quality assessments.

May 7: The 60-day “go shop” period expires.

May 8: Morgan Stanley tells Dell to up the Quest offer to $27 per share.

May 10: Quest’s Smith says he’d support a deal involving Dell paying $27 per share.

May 11: Dell refuses to lift bid beyond $25 per share.

May 12: Dell and the special committee enter a five-day period of exclusive negotiations.

May 16: Dell offers $25.75 per share.

Quest’s Smith vs. Dell

May 18: Smith now says he’ll support Dell if Dell offers $28 per share. Dell declines.

May 19: Insight is back at the negotiating table with Quest.

May 20: Dell says its offer expires at 5:00 p.m. New York City time on May 22, 2012.

Dell Offer Expires

May 22: Quest’s special committee compares the Dell and Insight offers. As of 5:00 p.m. New York City time on May 22, 2012, the Dell proposal expires. Meanwhile, Insight seeks additional financing to raise its offer to about $27 per share.

June 1: Quest’s special committee sends Insight a proposed letter agreement, requesting an executable proposal by 5:00 p.m. New York City time on June 5, 2012. The offer needs to include, among other things, an offer price of at least $26.00 per share. Insight doesn’t respond.

June 8: Insight and Vector Capital offer $23.50 per share.

Dell Jumps Back In: $25.50 per share

June 10: Dell is back in the game and submits an amended written proposal. The Dell offer price: $25.50 per share.

June 12: The Quest special committee meets with Potter Anderson and Morgan Stanley to discuss the June 10 Dell Proposal, with representatives of Latham & Watkins participating in a portion of the meeting.

June 12: Insight says it intends to offer $26.00 per share no later than 5:00 p.m. New York City time on June 14, 2012.

June 13: Quest’s board meets to discuss the status of the sales process. Separately, Morgan Stanley compared key deal terms contained in the Insight deal vs. the Dell proposal. The committee finds that Dell now has the superior offer on the table. But Insight has the right to match or beat the offer by 4:00 p.m. New York City time on June 20. The special committee confirms that Insight is expected to deliver an improved bid by June 20, 2012

June 14: Quest publicly announces that it has a superior offer, without mentioning Dell by name.

Insight: Back in the Lead, $25.75 per share

June 17: Insight increases its offer from $23.00 per share in cash to $25.75 per share in cash and adds Vector Capital to Insight’s buyout group.

June 19: Quest’s special committee holds internal meetings, then informs Dell that Quest intends to enter into an amendment to the Insight Merger Agreement.

Dell Counters: $27.50 per share

June 21: Dell ups its offer to $27.50 per share. Morgan Stanley asks if the offer price reflects Dell’s “best and final” price. Also, Morgan Stanley asks if Dell is open to potential discussions with Smith to secure Smith’s support.

June 22: Dell confirms $27.50 per share is Dell’s best offer.

Dell: Back in the Lead… But…

June 24: Quest’s board meets and determines Dell’s proposal is superior to Insight’s proposal.

June 25: Smith is still holding out, demanding Dell offer $28 per share or higher.

June 27: Dell agrees to increase its offer price to $28.00 per share in exchange for Smith’s support. Insight drops out of the bidding.

June 29: Quest’s special committee agrees to enter into the Dell Merger Agreement.

June 30: Quest’s board unanimously approves the Dell Merger Agreement.

July 2, 2012: Dell announces the acquisition of Quest Software for $2.4 billion.

Dell’s Patience vs. Smith’s Demands

In the end, Dell played a patient game of cat-and-mouse with the other Quest bidders. But it was ultimately Quest CEO Smith who controlled final terms of the deal, inspiring Dell to open its wallet just a little wider — and buy its way into the virtualization, IT management and managed services software markets.

So how did MSPmentor pull together this timeline, you ask? Let’s all give thanks to the SEC…