ServiceNow has spent at least $12 billion on acquisitions and investments this year. The biggest deal ever was last week’s $7.75 billion acquisition of cybersecurity startup Armis. Investors fear that the software company is relying too heavily on deals for growth, especially since CEO Bill McDermott built a reputation in this area during his time at SAP.
In any case, the acquisition of Armis fits in with what ServiceNow offers. Nevertheless, the announcement caused further turmoil on the stock market, where ServiceNow had already disappointed over the year as a whole. Its shares had already fallen 18 percent this year before the Armis news, after which another 12 percent of its market value evaporated.
Concerns about revenue growth
Wall Street is not happy, concludes Bloomberg, quoting several analysts. Matthew Hedberg, an analyst at RBC Capital Markets, suggests that the acquisition is being used to boost slowing revenue growth. One of the bogeymen for ServiceNow and other parties is that customers can use AI to build the functionality of enterprise applications themselves. We are very skeptical about this ourselves, but Klarna caused unrest by stating that it had already succeeded in pulling Salesforce out of its own IT stack. However, Sebastian Siemiatkowski, CEO of the company, later admitted that he does not expect other companies to follow suit. It’s not as if an LLM can replace the tooling of a CRM; Siematkowski explained that it is a more complex stack that Klarna has built itself. More complex and older companies than Klarna, which in fact has one very targeted application within fintech, will not be able to say goodbye to trusted enterprise applications so easily. Just migrating from one party to another often takes years.
Back to ServiceNow: its deal for Armis followed a week after the acquisition of Moveworks for $2.8 billion. A few months earlier, ServiceNow invested $750 million in contact center software provider Genesys. Six other deals this year came without a price tag. So the picture is clear: McDermott loves acquisitions (again), or inorganic growth.
McDermott’s SAP past
Before McDermott joined ServiceNow in 2019, he led SAP to its largest acquisitions ever. This was despite the fact that he had distanced himself from such ambitions. For example, he told CNBC in 2018 that no major acquisitions were planned, but months later announced an $8 billion deal for Qualtrics.
A ServiceNow spokesperson told Bloomberg that comparing the two periods is likecomparing apples to oranges. In 2010, there was a race to build scaled SaaS companies in the cloud, the spokesperson said, and acquisitions were a necessary tool. When McDermott joined ServiceNow, many expected big deals anyway. Instead, he emphasized organic growth, as in 2023, and promised to stay on that path. ServiceNow executives also indicated that they would opt for smaller “tuck-in” acquisitions that require little integration work. These include startups that were already largely focused on ServiceNow or had developed highly domain-specific technology suitable for ITSM or related matters.
Déjà vu for analysts
John DiFucci, an analyst at Guggenheim, experiences McDermott’s big deals as “déjà vu.” He sees the buying spree as an attempt to boost slowing revenue growth inorganically rather than as a smart product integration strategy.
ServiceNow recently extended McDermott’s contract as CEO until the end of 2030. Under his leadership, revenue nearly tripled, partly due to a focus on AI and workflows. The question remains whether this acquisition strategy will also be successful in 2025.