Dell Inc. fought to buy Quest Software Inc. for $2.4 billion, outbidding two private equity firms by hundreds of millions of dollars in a months-long battle, because Dell believes it has found what will be the core asset in its burgeoning software business. The deal comes after a crusade of more than a half-dozen software and networking acquisitions Dell has made since January 2011.

Though Dell said Quest will be the foundation of its software solutions business going forward, the company said Monday, July 2, it plans to continue growth organically and through acquisitions.

"We're going to grow through acquisitions initially," said Dave Johnson, senior vice president of Dell corporate strategy. Johnson amended that to say it would be a mixture of organic and acquisitive growth.

The boards of both companies approved the deal and shareholder approval is expected by the third quarter. For Quest chairman and chief executive Vinny Smith, 47, the sale to Dell will produce a far different result than if Quest sold to Insight Venture Partners and Vector Capital, the two firms that had most recently offered $25.75 per share, or $2.17 billion. Smith, who owned about 34% of Quest shares, was joining in that buyout bid, offering to roll over at least 84% of his shares, worth more than $600 million in equity. It would have left him with majority control in the company, while Insight and Vector would have owned equal minority portions.

Insight and Vector declined to comment.

With the sale to Dell, Smith will maintain an "advisory relationship" on how to help the company expand, Dell executives said. Whether that means Smith gets any stake in Dell is unclear. Dell declined to comment and Smith wasn't available. But Dell did buy all shares of Quest stock, delivering to Smith more than $800 million based on his 34% holding.

From its headquarters in Aliso Viejo, Calif., Quest sells software to corporations to help manage their IT infrastructure. It went public in the dot-com boom year of 1999, raising $61 million.

Round Rock, Texas-based Dell said it expects Quest's business to increase to more than $2 billion in revenue by 2016 from the $857 million it has today. Quest had roughly $92 million in loans along with a $40 million mortgage, and $300 million in cash.

Dell's higher bid was its basic lure, but Brian White, a senior analyst at Topeka Capital Markets, said he thinks Quest's board may have believed that Dell could kick-start growth at a faster pace than it would under private equity owners. Dell has a large distribution channel and would be able to effectively use Quest's more than 1,400 sales representatives to market similar products that aren't currently sold by Quest, such as cloud computing security systems.

In addition, Quest will enjoy a high profile under Dell's ownership.

"That's the most interesting thing: Here's this big IT behemoth that has almost no software business," White said. "I think what they see here is a core asset in software."

Dell has been working to build up its software portfolio. It paid an estimated $1.2 billion to $1.5 billion in March for SonicWall Inc., an Internet network and data security software company that was owned by Thoma Bravo LLC and Ontario Teachers' Pension Plan. It began a run of buying security- and cloud computing-focused companies in January 2010, when it bought venture capital-backed SecureWorks Inc., of Atlanta, for an undisclosed price.

Dell still has plenty of cash on the books to make more acquisitions -- more than $2.9 billion in free cash flow. But some of that is tied up outside of the U.S., White noted, limiting the number of U.S.-based acquisitions it can make. Because many of Quest's more than 100,000 customers are outside of the U.S., Dell should benefit by being able to contribute half of the $2.4 billion from funds it has outside the U.S. and from within the states, White said.

Charles Cory and Mike Wyatt of Morgan Stanley provided financial advice to Quest's special committee, while Potter Anderson Corroon LLP provided legal advice to the committee. A Latham & Watkins LLP team led by Charles Ruck, Michael Treska and Scott Shean provided legal counsel to Quest.

Dell's in-house legal team includes Larry Tu, Janet Wright, Mark Mouritsen, Kim Erlanson and Robert Potts. Allison Schneirov and Kenton King at Skadden, Arps, Slate, Meagher & Flom LLP provided legal counsel to Dell, which took financial advice from a Bank of America Merrill Lynch team of Jack McDonald, Steve Miller, David King and Shawn Liu.