EMC and RSA enter marriage of storage and security UPDATED 5:55 PM

James Rogers, Contributor

June 29, 2006

4 Min Read

At the end of a day filled with speculation, EMC declared its intention to acquire security software giant RSA for $2.1 billion today after the market closed.

"We think this is going to be a tremendous asset for EMC going forward," said Joe Tucci, the EMC CEO, on a conference call this evening. Tucci explained that EMC has been looking to grow its security revenues for some time, adding that he expects to "start out" at a $500 million run rate next year, following the RSA deal."

EMC will pay $28.00 per share in cash in exchange for each share of RSA and the assumption of outstanding options. RSA's shares traded at $20 when the market opened today and were at $22.88 at the close. The $2.1 billion does not include RSA's cash balance of $208 million. EMC expects the deal to close by early October.

The New York Times reported this morning a deal could be in the works, prompting a halt in trading of RSA shares. RSA then released a statement confirming that it was negotiating a transaction but did not name the company it was talking to.

EMC has been plotting a significant move into security for the past year, and it is a voracious acquirer of companies. CEO Joe Tucci identified security and virtualization as potential target areas during the firm's recent analyst day earlier this month, where EMC was urged to boost its security and digital rights management portfolio. (See EMC Nets nLayers, Scopes Security.) Still, the deal goes against EMC's recent trend of sticking to small deals -- or what Tucci calls "string of pearls" acquisitions.

At least one observer, Richard Stiennon, chief research analyst at IT-Harvest, believes EMC could do worse than grab RSA. "I always thought that RSA was an undervalued gem in the security space," he explains. "RSA is everywhere, everyone knows how to use it, it's tried and tested."

By acquiring RSA, EMC gets its hands on an extensive array of encryption technologies, as well as the vendor's SecurID authentication offerings. Up until now, EMC has mainly focused its security efforts on back-end systems, although RSA could open the door to the both the consumer market and desktop users. (See RSA Unveils Data Protection, RSA's Master Key Plans, and RSA to Access Mid-Sized Businesses.)

RSA has also been edging closer to the storage market. The vendor recently announced plans to extend its centralized key management software to new areas, such as databases, file systems, and (eventually) mobile devices. Earlier this month, RSA teamed up with Protegrity to integrate its Key Manager software with the latter's encryption offerings. (See RSA's Master Key Plans.)

The other potential bonus, of course, is RSA's 20,000-strong customer base, which includes big names, such as the U.S. Department of Defense, E*Trade Financial, and Barclays Bank in the U.K. EMC would also get its paws on a slew of smaller customers at a time when the storage vendor is pushing more and more of its technology in the direction of SMBs. (See EMC Delivers Insignia to SMBs, EMC Upgrades SMB SANs, Vendors Set Sights on SMB Windfall, and SNW: Small, SAS-sy & Safe.)

Stiennon told Byte and Switch that the jewel in the RSA crown is its strength in the financial sector. "Not only do they have the standard in [authentication] tokens, they also bought a company called Cyota that provides the anti-phishing standard for banks," he said. (See RSA to Acquire Cyota.)

EMC, which has now spent at lest $6.6 billion on a slew of acquisitions in just over two-and-a-half years, acquired digital rights management specialist Authentica earlier this year and has forged encryption OEM deals with Decru and Neoscale. (See EMC Acquires Authentica.) Despite these moves, there is a feeling in the market that no single vendor currently offers a silver bullet combining storage and security.

Certainly, security is the main area where users are looking for EMC to beef up its efforts. Of the 322 responses to a recent Byte and Switch poll, some 55 percent said the storage giant should target security for its next acquisition. This area was identified as the biggest gap in EMC's product portfolio. (See Readers Eye EMC's Expansion and EMC’s MVP.)

Stiennon feels the deal could pave the way for some major M&A in the security space. Up until now, he explained, most security acquisitions have been relatively small affairs. "There's a lot of roll-up activity, but not these billion-dollar deals," he said. Symantec, for example, could be a potential target for Cisco, which up to now has been "dabbling in the anti-virus space."

— James Rogers, Senior Editor, Byte and Switch

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