Dell (NASDAQ:DELL) made its biggest recent acquisition by agreeing to buy business software maker Quest Software for $2.36 billion. Quest is an IT management software provider, famous for database management software such as TOAD. Apart from database management systems, it also makes performance monitoring, data protection, server management, security software and workstation virtualization. Quest reported a revenue of $857 million in 2011 and its software products and services will complement Dells offerings as the PC maker diversifies its business into services to fight off falling margins in the hardware business. 
Increasing Focus On Services
Dell formed a business unit dedicated to selling software earlier this year and has been on an acquisition spree to add more products and customers to the new business unit. It offered $28 a share for Quest, winning a month long bidding war against Insight Venture Partners, a leading private equity and venture capital firm. Quest fits into its software strategy which seems to be focused on virtualization, data security and protection and systems management.
Potential Upside For Dell
Dell will acquire Quest’s customer base which is ~100K and will also get access to its ~4,000 solution provider partners, expanding the sales network significantly. This acquisition makes Dell one of the biggest players in storage, security and database management systems and can lead to a significant cross selling opportunity for hardware, thin clients and virtualization services of Dell. 
If the acquisition drives up Dells services sales from our currently projected $12 billion by the end of our forecast period to $14 billion, we can expect and upside of ~10% to our current Trefis price estimate.
We have a $19.22 Trefis price estimate for Dell, which is significantly higher than the current market price.Notes: