By Nadia Damouni and Supantha Mukherjee
(Reuters) - Quest Software Inc has received an improved bid from Dell Inc to buy the maker of enterprise management software for about $2.32 billion, a source close to the matter said on Monday.
Two bidders have recently been competing to buy Quest: a buyout group led by private investment firm Insight Venture Partners, and an undisclosed bidder.
On Monday, a source close to the matter told Reuters that the mystery bidder was actually Dell, the No. 2 U.S. PC maker. Quest disclosed on Monday that it had received an improved bid of $27.50 per share in cash from the mystery bidder, but did not reveal the bidder's identity.
Reuters reported on May 25 that Dell planned to offer $23 to $26 per share to buy Quest. The source who spoke to Reuters on Monday requested anonymity because the takeover talks are private.
Dell declined to comment on Monday, and a Quest representative was not immediately available for comment.
Major tech companies have often preferred to keep their identities private when bidding wars heat up. This helps prevent the bidder from feeling compelled to overpay and also spares it the public embarrassment of an unsuccessful takeover attempt.
One of the last public battles occurred when Dell fiercely competed against Hewlett-Packard Co for data storage company 3Par Inc in 2010.
Dell spurred that fight with an $18-a-share bid, but HP ended up buying the company for $33 a share.
Dell's latest offer for Quest beats an earlier bid of nearly $2.17 billion or $25.75 a share from the Insight Venture Partners buyout group which includes Vector Capital.
Shares of Quest were up 5.3 percent at $27.60 on Monday afternoon on the Nasdaq, suggesting that investors expect a counter-offer to emerge. Dell shares were down 1.9 percent at $11.97.
Jefferies analyst Aaron Schwartz wrote in a note on Monday that the flexibility of the buyout group is limited at and beyond the $27.50 to $28.00 level. An amended bid would require Insight and Vector to increase their equity commitments and change the debt financing structure.
JPMorgan Chase & Co, RBC Capital Markets and Barclays are currently providing approximately $1.2 billion for the joint bid from Insight and Vector.
Dell has been actively snapping up companies as it tries to diversify away from personal computers, a market where growth is decelerating as Apple Inc's iPad and other mobile devices pull consumers away.
Dell executives have said they view software and services as a key growth area.
When the PC maker announced its acquisition of network security provider SonicWall in March, a senior Dell executive vowed that more such deals were in the pipeline.
"My goal is to make software a meaningful part of Dell's overall portfolio," John Swainson, president of Dell's software group, told reporters on a March 13 conference call. "That means this (SonicWall) is not the last thing you're going to see from us."
On-again, off-again talks between Dell and Quest had broken off last month, sources have said. Dell has yet to publicly acknowledge any interest in buying Quest.
Quest said its board of directors has determined the new proposal is superior to prior offers.
Last week, Quest agreed to sell itself to Insight for $25.75 per share, after the private investment firm and new partner Vector Capital raised their bid.
The Insight-Vector cash offer of $25.75 a share had topped a $25.50 bid made by a "strategic bidder" that Reuters later identified as Dell.
Insight has three days to match rival offers, or adjust its own bid.
Aliso Viejo, California-based Quest is led by Chief Executive Vinny Smith, who has served as either chairman or CEO for more than a decade.
Any deal with Quest is fraught with complications as roughly 34 percent of Quest is owned by Smith, who took over in February after Doug Garn stepped down, citing poor health.
(Reporting by Nadia Damouni in New York and Supantha Mukherjee in Bangalore; additional reporting by Jim Finkle in New York; Editing by Maureen Bavdek and Matthew Lewis)