$12 billion acquisition takes a sharp turn—Is ServiceNow retracing SAP’s old path?

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After years of avoiding large-scale acquisitions, ServiceNow has suddenly kicked off an acquisition spree this year, spending at least $12 billion on acquisitions or strategic investments.

On Tuesday, ServiceNow announced its largest acquisition to date, agreeing to acquire cybersecurity startup Armis for $7.75 billion.

This deal comes just a week after the company completed a $2.8 billion acquisition of Moveworks, and a few months after a $750 million investment in contact center software provider Genesys.

This string of moves has investors worried that the company may be starting to rely on deals to drive growth, especially considering CEO Bill McDermott led a series of controversial acquisitions during his tenure at SAP SE.

Before news of the Armis deal first broke on December 13th, ServiceNow’s stock had already declined 18% this year, and has since fallen another 12%. RBC Capital Markets analyst Matthew Hedberg noted that Wall Street is dissatisfied with the company potentially using acquisitions to boost slowing revenue growth.

(Total decline over 27% this year)

Record-breaking Deal Size

Armis specializes in identifying and tracking security threats for enterprise devices, which strategically aligns with the enterprise IT operations management software sold by ServiceNow. The $7.75 billion deal is ServiceNow’s largest to date.

In addition to the three large, announced deals, ServiceNow has completed six other acquisitions this year with undisclosed prices. According to media reports, the company’s total spending on acquisitions and investments for the year has exceeded $12 billion.

These deals remind the market of McDermott’s acquisition strategy during his SAP days. In 2018, he told CNBC that SAP would not pursue large acquisitions, but just months later announced the $8 billion acquisition of Qualtrics.

Now, ServiceNow seems to be replaying a similar script, raising investor concerns about the sustainability of its growth.

Guggenheim analyst John DiFucci wrote that as McDermott embarks on another series of large deals, it feels a bit “déjà vu.” He said:

This acquisition spree seems more like management trying to fix slowing revenue growth through M&A, rather than a strategy of complementing existing products.

Company Growth Under Pressure

In recent years, ServiceNow has managed to maintain rapid revenue expansion even as many competitors have slowed down.

The company expects to generate over $13 billion in sales this year, up 21% from last year, and roughly in line with its 2024 revenue growth rate. However, Wall Street analysts expect sales growth in 2026—excluding acquisitions—to fall below 20%.

When McDermott took the helm at ServiceNow in 2019, many expected him to pursue aggressive M&A. However, he tried to indicate that those days were over. At the beginning of 2023, McDermott said:

Organic growth is delightful, and we will stick to that path.

As recently as this month, company executives said they would focus on “complementary” acquisitions, meaning smaller deals that don't require extensive integration work.

Addressing investor concerns, a ServiceNow spokesperson said in a statement that comparing McDermott’s M&A record at SAP was “irrelevant.” The spokesperson explained:

In the 2010s, the industry was racing to build large-scale software-as-a-service operations in the cloud. For major established companies, M&A was a necessary tool in that environment, which is why many companies pursued it aggressively.

The spokesperson added:

Compared to SAP in the 2010s, ServiceNow is in a fundamentally different and better strategic position. ServiceNow does not need acquisitions to buy market appeal or growth. The company’s strategy fundamentally remains unchanged.

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