ServiceNow tumbles on report that it’s nearing a deal to buy cybersecurity startup Armis for up to $7 billion

ServiceNow is deep in the red in premarket trading Monday after Bloomberg reported that the software company is in “advanced talks” to buy cybersecurity firm Armis for up to $7 billion, citing people familiar with the situation.

In early November, a pre-IPO funding round valued Armis at $6.1 billion. The firm touts United Airlines, Mondelez, “3 of 5 largest retailers in the US, 3 out of 5 largest banks and many more” as customers, and said in August that it had surpassed $300 million in annual recurring revenue.

A stake in Armis is a hot commodity. CEO Yevgeny Dibrov told Bloomberg in September that it was weighing six to seven offers from investors — one of whom was reported to be private equity firm Thoma Bravo — that were looking to take a position in the firm.

“ServiceNow’s possible acquisition of Armis, as reported by Bloomberg News, would help its IT asset management practice, which complements its much larger IT service management business,” Bloomberg Intelligence analysts Anurag Rana and Andrew Girard wrote. “Though ServiceNow isn’t a pure-play cybersecurity vendor, Armis could help provide bundled services amid rising threats, especially with increased use of LLMs.” However, they also noted that “the reported deal price of $7 billion to gain $300 million in annualized recurring revenue seems expensive.”

Along with this news, KeyBanc analyst Jackson Ader also downgraded shares of ServiceNow to “underweight” from “sector weight,” with a price target of $775, warning that the software company is facing stiff competition from Microsoft’s Agent 365.