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Clearlake Capital To Buy Quest Software For A Reported $5.4B

Michael Novinson

‘We believe Quest is well-positioned to capitalize on emerging growth trends in identity-centric cybersecurity, data intelligence and IT operations management software,’ say Clearlake’s Prashant Mehrotra and Paul Huber.

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Clearlake Capital has agreed to purchase Quest Software for a reported $5.4 billion including debt after a half-decade of being owned by Francisco Partners.

The Aliso Viejo, Calif.-based cybersecurity, data intelligence and IT operations management software provider will continue to be led by Patrick Nichols, who has served as CEO since April 2020. Terms of the transaction weren’t disclosed, although The Wall Street Journal reported the $5.4 billion purchase price Sunday. Francisco Partners bought Quest and SonicWall from Dell Technologies in 2016 for $2.4 billion.

“Our new partnership with Clearlake will accelerate Quest’s momentum as a leader and innovator as we increase our investment pace in our core product road maps, cloud/SaaS offerings and global presence,” Nichols said in a statement. “We will continue to expand our customer base as computing environments and related management, modernization and security challenges become more complex.”

[Related: One Identity Buys OneLogin To Create Broader Identity Platform]

The transaction is expected to close in the first quarter of 2022 and doesn’t include SonicWall, which is owned by private equity firm Francisco Partners and activist hedge fund Elliott Management. PE Hub reported in June that Francisco and Elliott Management were expected to launch a sale process for SonicWall later this month with assistance from Morgan Stanley, which is providing financial advice on the process.

Clearlake’s proposed acquisition of Quest comes less than two months after Quest-owned One Identity purchased OneLogin to bring identity governance, privileged access and identity access management together in one platform. OneLogin’s capabilities around single sign-on, multifactor authentication and customer identity and access management (CIAM) complemented One Identity’s existing portfolio.

“We believe Quest is well-positioned to capitalize on emerging growth trends in identity-centric cybersecurity, data intelligence and IT operations management software,” said Clearlake Partner Prashant Mehrotra and Principal Paul Huber. “Now with significant scale and completely independent, Quest is strategically differentiated in the market as a buy-and-build platform and industry consolidator.”

The $5.4 billion Clearlake is paying amounts to 10.9 times Quest’s earnings before interest, taxes, depreciation and amortization (EBITDA) for the past 12 months, The Wall Street Journal reported. Francisco Partners stands to make more than 6.5 times its money on the sale, sources told The Wall Street Journal. Quest, Clearlake and Francisco Partners didn’t respond to a request for comment.

“We are proud of the tremendous progress Quest has made since relaunching as an independent company,” said Francisco Partners co-rounder and CEO Dipanjan Deb. “We have a long and successful track record executing divisional carve-out transactions and are grateful to have had the opportunity to work with the Quest team to create value for the company, its customers and its partners.”

Quest’s security and identity segment is now growing at double digits—faster than the core business—and Clearlake plans to continue building it through further M&A, a source told The Wall Street Journal. The company sells its security technology to customers of all sizes, with One Identity traditionally focused on Fortune 5000 companies and OneLogin historically strongest in the commercial and midmarket areas.

Outside security, Quest acquired data modeling, data governance and business process modeling software company Erwin in January 2021 from private equity firm Parallax Capital Partners. And in the second half of 2020, Quest purchased Quadrotech and Binary Tree for expertise and software around Microsoft 365 and Office 365 cloud migrations.

“We are excited to partner with Patrick [Nichols, Quest’s CEO] and Carolyn McCarthy, Quest’s CFO … to help the company strengthen its strategic growth plans including best practices to accelerate cloud/SaaS adoption and support its buy-and-build strategy,” Clearlake Co-Founder and Managing Partner Behdad Eghbali said in a statement.

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