IT service provider Quest Software announced on Friday that it’s entered into a deal with private equity firm Insight Venture Partners that will see the company pay a total of $2 billion to purchase its stock back from outside shareholders and return to being a private company. This move was unanimously approved by Quest’s board of directors.

That $2 billion figure represents a per-share purchase price of $23, a 19 percent premium to Quest’s March 8th closing price. Current Quest Chairman and CEO Vinny Smith will retain both his executive leadership of and his financial stake in the privately-owned entity that comes out of the deal. Quest, founded in 1987, will keep its headquarters in California.

“As a private company, we will have increased flexibility to drive innovation across our product lines and execute our long-term strategy. We expect this strategic partnership with Insight, with whom we have worked for many years, will ensure the Company has a secure foundation and a commitment to investment in the Company’s long-term growth. This move to a private company also will create exciting career opportunities for our employees, while retaining our commitment to continuing to provide excellent service to our customer,” Smith said in the release.

Interestingly, Quest has entered a 60-day “go-shop” process where a special committee, plus legal and financial advisors, will make themselves open to better deals from other parties. Of course, there are no guarantees, and if Quest does choose to go with another offer, it owes Insight a $4.2 million “break-up fee.” After this go-shop period is over, that fee shoots up to $6.3 million.

Funding for this stock purchase comes from “a combination of a $210-million equity commitment from Insight, a rollover of Vinny Smith’s existing shares and $1.195 billion of debt financing commitments from J.P. Morgan Chase Bank N.A., RBC Capital Markets and Barclays Capital,” according to the release.

Recently, Quest reported $857.4 million in total 2011 revenues, an 11.8% increase over the year before, and boasts that it has over 100,000 customers for its virtualization and cloud, data protection, systems management and monitoring services.

It’s also worth noting that legal firms Harwood Feffer LLP, Finkelstein Thompson LLP and Kendall Law Group are investigating Quest independently of each other on behalf of shareholders as of today, allegedly to confirm that the board of directors is fulfilling its duties and maximizing financial value for the company by entering into this deal with Insight.

Services Angle

Quest Software is a prominent Microsoft partner and ISV, and spent the last few months making a few acquisitions. Does this move portend more growth, or it a sign that the service provider is going to slow it down in 2012?