EMC (EMC) has entered into an agreement to acquire Silver Tail Systems, a privately held company that provides real-time web session intelligence and behavioral analysis. Silver Tail's technology will strengthen EMC's security portfolio as it will be integrated with RSA, a computer and network security company that EMC acquired in 2006.

Silver Tail's clients include some of the largest brands in financial services, e-commerce and the federal government. Terms of the deal were not disclosed and the acquisition is expected to be completed in the fourth quarter of 2012, subject to closing conditions. The acquisition is not expected to have a material impact for the full 2012 fiscal year though.

The company expects 2012 revenues between $21.6 billion and $21.75 billion with operating income of 17.8% of revenues, or $3.85 billion. Further, EMC expects consolidated operating cash flows of $6.1 billion and free cash flows of $4.9 billion for this year. It also plans to repurchase $700 million of its common stock in 2012.

A closer look at RSA

RSA, the security division of EMC, provides security, risk and compliance management solutions for businesses. These include managing mobile access, compliance and securing cloud environments. It mainly deals in identity assurance, encryption and key management, network monitoring, and fraud protection.

RSA is the biggest player in identity and access management space and owns around 12% of the market. Silver Tail Systems' product portfolio will enhance RSA's offering by enabling real time fraud detection, which is extremely useful in online financial transactions and e-commerce applications.

This is a relatively small division and accounts for nearly $850 million in annual revenues for EMC, but it is a high growth and high margin business. We estimate the division is worth nearly 5% of EMC's price estimate and has gross margins of around 80%. While key encryption and identity management is a fragmented market, real-time fraud detection and web behavior analytics is an under-served segment, and we expect this acquisition to help revenue growth for the company in 2013.

We currently have a $52 Trefis price estimate for EMC, which is significantly higher than the current market price. We explain our rationale for a significant upside to EMC stock here.