EMC Pockets Network Intelligence

EMC Corp. (NYSE: EMC) has plunked down $175 million in cash to purchase Network Intelligence Corp. of Westwood, Mass., in a move aimed at bulking up EMC's newly founded security division in Bedford, Mass.

The acquisition closed this morning, shortly after EMC announced it. In tandem, EMC said it also closed its $2.1 billion purchase of RSA Security Inc. (Nasdaq: EMC), announced in June. (See EMC Acquires RSA and RSA Stockholders OK Deal.) To complete the RSA deal, EMC took out a $2.2 billion unsecured credit facility.

When the RSA buy first surfaced, analysts questioned EMC's enormous investment in its new security division (called officially "RSA, the security division of EMC"), headed up by Art Coviello, RSA's former CEO, who is now an EVP of EMC reporting to CEO Joe Tucci. Some thought EMC was spending too much, getting too far afield of its basic bread and butter. (See Did EMC Overpay?.) Today's purchase of Network Intelligence shows EMC isn't listening.

"Information security continues to dominate the spending intentions of CIOs around the world," Tucci said in a prepared statement.

Network Intelligence's 125 employees will stay with EMC and remain at their present site, though they'll make the newly hatched RSA division into a 1,500-person effort, since RSA itself had about 1,300 employees. Network Intelligence's CEO, Jack Sweeney, will continue to lead his group and will work for Coviello. All Network Intelligence products will eventually take on the RSA brand name.Founded in 1996, Network Intelligence claims roughly 700 enterprise customers. It raised $25 million before EMC bought it. Backers include Bain Capital Ventures, Castile Ventures, Ascent Venture Partners, Egan-Managed Capital, JMI Equity Fund, and founder Lynn Mormann. The firm makes so-called SIM (security information management) software and appliances called enVision. The product gathers log information from network devices, including storage arrays, in a network-attached appliance and sifts it for conclusions about the causes and future likelihood of security problems.

Right now, RSA and Network Intelligence are the only two vendors in EMC's new RSA security division, but that may not last. EMC spokesman Michael Gallant points to Tucci's vow earlier this year to make security a "billion dollar business" within EMC. Considering EMC makes roughly $9 billion annually, the company's goal is to make security account for a sizeable chunk of overall revenues. (See EMC Nets nLayers, Scopes Security.) To do that, EMC management is ready to open the wallet as needed.

Whatever may be added later, EMC sees RSA and Network Intelligence playing key roles in a plan being marketed as "EMC Common Security Platform (CSP)." While EMC will continue to sell both companies' products as they exist now, the company will also use them to create user authentication, authorization, auditing, encryption, and key management across EMC's products.

"We'll build security into EMC storage and information services products," says Rob Sadowski, senior manager of product marketing at EMC's security division. "We will continue to sell RSA and Network Intelligence separately, too."

One thing: EMC apparently has cast aside its once-fashionable mandate to be a software company, at least as far as security goes. Network Intelligence's appliances just might migrate into EMC security appliances in the future, Sadowski says.Reaction to EMC's latest buy has been mixed. At press time, shares were selling at $11.13, down $0.12 (1.07%). But at least one analyst thinks the handsome prices EMC's paid for both RSA and Network Intelligence may be worth it.

"The announced price tag for the Network Intelligence deal was $175 million in cash, but there are rumors circulating that the total consideration paid could reach $250 million if certain financial milestones are achieved post merger," writes Murray Beach, managing director of investment banking firm Boston Corporate Finance, in a note today. "Despite the price, we find EMCs information-centric security strategy to be quite unique relative to what many of the other pure-play content management and storage players currently offer."

Another analyst appears to agree. "I believe the Network Intelligence acquisition does very good things for EMC," writes Eric Ogren, security analyst with the Enterprise Strategy Group (ESG) in an email today. "With RSA they have the ability to control who has access and to encrypt sensitive information to protect from prying eyes. Network Intelligence brings high performance capability to capture and interpret trasactions on information..."

The question in all this is whether EMC can integrate its pricey new properties fast enough to get the most bang for its bucks. So far, the jury's out. EMC has lots of messaging but no actual product roadmap for its new division. Then again, with ready-made revenue from RSA and Network Intelligence's existing wares, what's the rush?

— Mary Jander, Site Editor, Byte and Switch0