ServiceNow $NOW ( ▲ 1.02% ) shares were in the red in premarket trading Monday after Bloomberg reported that the enterprise software giant is in advanced talks to buy cybersecurity startup Armis for as much as $7 billion. Investors appeared uneasy with both the size of the deal and the price tag.
Armis was valued at $6.1 billion in a pre IPO funding round in early November and has become a hot asset in the cybersecurity world. The company counts United Airlines, Mondelez, three of the five largest US retailers, and three of the five largest US banks as customers. It also said in August that it had crossed $300 million in annual recurring revenue.
Interest in Armis has been intense. CEO Yevgeny Dibrov told Bloomberg in September that the company was weighing six to seven offers, including one from private equity firm Thoma Bravo. In other words, ServiceNow would not be buying a distressed asset, it would be paying up in a competitive process.
Bloomberg Intelligence analysts said an Armis acquisition would bolster ServiceNow’s IT asset management business and help it bundle cybersecurity services as threats rise alongside broader use of large language models. Still, they flagged valuation concerns, noting that paying $7 billion for about $300 million in annualized recurring revenue looks expensive.
Adding to the pressure, KeyBanc analyst Jackson Ader downgraded ServiceNow to underweight from sector weight and set a $775 price target. He warned that the company faces growing competition from Microsoft $MSFT, particularly its Agent 365 platform, just as investors are already questioning whether this deal makes financial sense.