Quest Software Inc. accepted a sweetened $2.17-billion bid from Insight Venture Partners and agreed to the addition of Vector Capital to the buyout group.
Insight's new cash offer of $25.75 a share topped a bid of $25.50 that Aliso Viejo-based Quest received last week. That offer came from personal computer maker Dell Inc., a person familiar with the matter said. The deal's termination fee was increased to $25 million from $6.3 million, Quest said.
Quest said March 9 that it agreed to be acquired by Insight for $23 a share, and two months later said it received several other proposals that it anticipated would lead to a superior offer.
Chief Executive Vincent Smith preferred a sale to Insight over Dell because it would allow him to keep running the company, said the person, who asked not to be named because the negotiations are private.
Dell may be willing to boost its bid, said Abhey Lamba, an analyst at Mizuho Securities USA Inc. "Even if it were to go up to $26, Dell can make the acquisition work," Lamba said. "We are not sure if there are other factors that are weighing on Quest management's mind."
A spokesman for Dell declined to comment.
Quest shares have advanced 42% this year. The shares fell 2 cents to $26.50 on Wednesday, giving it a market value of $2.23 billion.
Quest's software helps businesses administer databases and servers, as well as back up information and recover lost data. Insight, a New York private equity firm, specializes in software and Internet businesses.
Although Dell needs to add systems-management software like Quest's to keep up with rivals, the company may be limited in how much it can offer because it initiated its first dividend last week, tying up some of its cash, said Shaw Wu, an analyst at Sterne Agee & Leach Inc.
"Dell just committed to pay a dividend," Wu said. "That restricts what they can do. When you make a commitment to pay a dividend, you have to pay it. Buying Quest is optional."
Insight and San Francisco-based Vector will each contribute $187 million in equity to finance the acquisition, which will also be funded by a rollover of at least 84% of Smith's existing shares and about $1.2 billion of debt, Quest said.