EMC to buy RSA Security for $2.1 billion

By Jo Maitland, News Director 29 Jun 2006 | SearchStorage.com

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The company announced the deal late Thursday following a report in the New York Times that it was one of a number of companies bidding for RSA.

"This company and this space is incredibly hot," said Joe Tucci, chairman, president and CEO of EMC, on a conference call with press and analysts. "There are other companies that noticed this ... yes, this was a very competitive situation." He added, "This was a missing piece in our infrastructure puzzle. This is something if we do right , we can distance ourselves from the competition."

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Wall Street analysts on the call indicated that EMC, which is currently attempting to shift from a storage company into a broader supplier of data center technology, is significantly over-paying for the company at five times RSA's estimated 2007 revenues. "Three weeks ago, you indicated you wouldn't do anything over $300 million -- what's changed since then?" barked one analyst. Tucci insisted RSA's annual revenues of $375 million did still fit in with his "string of pearls" approach to buying companies.

This year, EMC has acquired ProActivity, Captiva, Authentica, nLayers, Interlink, Kashya and Internosis -- all companies EMC terms as "tuck-in acquisitions" for small change. "That's where my head is," Tucci said at EMC's analyst day in June.

However, Tucci has always claimed he's not a fan of big deals, and yet he was at the helm when EMC acquired Legato for $1.3 billion in July 2003 and Documentum for $1.7 billion just three months later. The acquisition of RSA is about 25% more than EMC paid for Documentum.

An analyst with Lehman Brothers asked, "Why not partner with RSA?"

"RSA wasn't going to be around," snapped Tucci. "This is critical technology ... If you think we're the only ones that saw that, you're not listening to me. There's a limited number of places to get it ... Others that bought it would not have wanted to share it with us."

RSA makes most of its money from its SecurID multifactor authentication tokens that are used to log into a network or get into a building. It also sells access control and encryption technology. For more on RSA's products, click here.

Jon Oltsik, senior analyst with Enterprise Strategy Group, says EMC wants to integrate identity management into its entire portfolio, and RSA has the intellectual property it needs to do this. "EMC wants to slap identity onto a file in storage; it wants to put identity into a VMware virtual machine, securing who has access to what partition and what they can do on those partitions." He said EMC will also want to add security to Smarts and Documentum. "RSA has a lot of cutting-edge security products that haven't been brought to market as well as they should have … EMC's sales and marketing machine could fix that."

William Hurley, senior analyst with Data Mobility Group, said a deal between EMC and RSA is potentially "very positive." He notes that RSA encryption and directory and identity integration would add resilience to EMC's content and storage [hardware and software] portfolios. In particular, he says EMC's Documentum business, which provides content management, workflow, real-time collaboration, business process modeling and analytics software, all require a security hook for encryption, access and identity management.

"Thinking down to storage, the need for certificate management and tie-in to identity will be critical going forward," Hurley said. However, he said he believes RSA is not considered to be best of breed anymore. Moreover, the company reported a first quarter profit of $5.3 million on revenues of $87.5 million in April -- a far cry from EMC's $1 billion goal.

"In the end, this pickup, or one like it, is a necessary move for EMC as it becomes a truly diversified systems vendor, not just a storage company," Hurley said.

EMC, based in Hopkinton, Mass., has already taken some baby steps in the security space, acquiring email security company Authentica Inc. for an undisclosed sum in March. It's worth noting that RSA is based in Bedford, Mass., just up the road from EMC.

Upon completion of the acquisition, RSA will operate as EMC's Information Security Division, headquartered in Bedford, Mass. Art Coviello will become an Executive Vice President of EMC and President of the division.

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