Dell has confirmed a $28 per share cash deal for California-based software business Quest. Its offer values Quest at $2.4bn and trumps previous bids from VC outfit Venture Capital Partners. The move should provide a serious boost to Dell’s fledgling software ambitions, although in itself it’s not an answer to Dell’s persistent and perilous over-reliance on PCs, laptops and other hardware.
So what is Dell getting for its $2.4bn? Quest provides IT management and security software, and has itself grown through a series of acquisitions (including no fewer than 10 in the past 4 years). As such it fits Dell’s software strategy of targeting systems and infrastructure-focused solutions, and is the largest of Dell’s software acquisitions so far. As well as product, Quest should also give Dell some useful increased capacity and skills to develop and integrate its growing software portfolio in the coming years, provided it can hang onto the company’s key employees.
With $857m in revenue (in 2011, with nearly two-thirds of it in the Americas), Quest will roughly treble the size of Dell’s software business overnight. That said, Dell is not exactly buying a growth engine. Licence revenue growth at Quest was 5% in 2011, and not all of that was organic. Admittedly services (mostly maintenance) grew rather better, by 16%. But Quest in itself won’t necessarily get Dell to its stated ambition of $2bn in software revenue by 2016. Don’t expect Dell to make another software acquisition of this scale, but more bolt-ons in hot areas like security and virtualisation could still be on the cards.
Dell’s software ambitions need putting in context, nonetheless. The company turned over $62bn in 2011 (see Dell: the perils of BYOT). $33bn of that came from sales of laptops and PCs. The growing services business, plus $2bn from software (if it achieves that goal by 2016), aren’t going to eradicate the fundamental strategic challenge that Dell faces in hardware markets. There’s a lot more work for Michael Dell and team to do.