ServiceNow CEO says mergers and acquisitions are off the table – too messy
- Reference: 1643289488
- News link: https://www.theregister.co.uk/2022/01/27/servicenow_soars_as_ceo_mcdermott/
- Source link:
ServiceNow has reported revenue of $1.6bn in the fourth calendar quarter of 2021, up 29 per cent on a year earlier. The firm posted a $2m loss, which had narrowed slightly, but was bullish about the future. Subscription sales hit $1.5bn in the fourth quarter, up 30 per cent on a year earlier. The firm expects them to reach $1.6bn by the next quarter, 25 per cent growth year-on-year.
But it was the earnings call that might just to ruffle the feathers of seasoned industry watchers.
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Never able to resist the opportunity to bloviate through these partly staged events, the Big Mc took the opportunity to say why ServiceNow had so far declined the opportunity to grow via mergers and acquisitions with the following statement to investors:
We have no targets… for M&A. And the reason for that it is… organic growth basis. You see the numbers as much as I see the numbers. And we have engineers that love this company… They come in and they create new things, and they have an idea that they can take and they have a dream that they can build. When I listen to other engineers [at] other software companies that want to come over here, [they] tell me they spend 90 per cent of their time integrating the past as opposed to innovating the future. It just reminds me of how thoughtful we have to be on M&A.
Just imagine how this might be received by engineers at SAP, or indeed SAP's customers. Between 2010 and 2019, McDermott served as CEO at the German software giant, first in a joint position, then as the sole leader. During that time, the application firm bought a long list of companies including Sybase, Ariba, Fieldglass, and SuccessFactors. We counted 40 plus buys.
That was good for SAP investors since market capitalisation increased from $39bn in 2010 to $144.7bn by 2018. That was good for McDermott, too: he became the best-paid executive on the German stock exchange, netting an [3]€11.6m annual salary .
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But it was not so good for software developers.
The acquisitions were met with a chorus of complaints about difficulties integrating the mish-mash of products that resulted from the M&A binge.
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In 2020, Americas' SAP Users' Group CEO Geoff Scott [7]told The Register that integration was a major concern from users buying a spread of systems from the global ERP giant.
[8]ServiceNow's king of understatement quietly goes about his business of changing the world, one workflow at a time
[9]What have the Romans ever done for us? In ServiceNow's new Rome release, replaced intranets, for one
[10]Feel like you've been sucked through your vendors' pipes? ServiceNow's marketing has you in mind
[11]Not as many $1m customers as last quarter? Sorry, we're out: ServiceNow shares fall despite soaring revenues
"Feedback from the customers, over and over again, is that very specific integration matters," he said. "Whether I buy ERP or supply-chain products from SAP, I should be buying end-to-end business processes configured the way that I need them to run versus trying to navigate disparate products that SAP has purchased over the years."
Still, none of this matters to McDermott, who is out the door with a huge pay packet and seemingly enjoying life at ServiceNow.
Announcing ServiceNow's results, he took the time for a quick interview with news outlet [12]Bloomberg .
"The marketplace today wants something that not everyone can give them. What they want now is growth, but they also want profitability," he said. "The party is just getting started."
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For McDermott every day is a reason for celebration, it seems, no matter how much time it takes to clear up the mess. ®
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[1] https://dictionary.cambridge.org/dictionary/english/brass-neck
[2] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/saas&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2YfLPu5w@DRgK1kqjndhM6wAAAMc&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[3] https://www.theregister.com/2019/11/26/former_sap_boss_mcdermott_new_house/
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/saas&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YfLPu5w@DRgK1kqjndhM6wAAAMc&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
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[6] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/saas&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44YfLPu5w@DRgK1kqjndhM6wAAAMc&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[7] https://www.theregister.com/2020/06/26/sap_erp_upgrade_plans_on_hold/
[8] https://www.theregister.com/2021/10/28/shy_understated_servicenow_boss_quietly/
[9] https://www.theregister.com/2021/09/16/servicenow_rome_debuts/
[10] https://www.theregister.com/2021/04/30/servicenow_wonka_campaign/
[11] https://www.theregister.com/2021/04/29/servicenow_q1_2021/
[12] https://www.bloomberg.com/news/articles/2022-01-26/servicenow-shares-gain-on-quarterly-sales-jump-outlook?utm_source=google&utm_medium=bd&cmpId=google#:~:text=%E2%80%9CThe%20marketplace%20today%20wants%20something,at%20%24484.42%20in%20New%20York.
[13] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/saas&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33YfLPu5w@DRgK1kqjndhM6wAAAMc&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[14] https://whitepapers.theregister.com/
It would probably help if I knew what an M & A was. Googling two letters doesn't sound like a good tactic either.
Merger & Acquisition
Bear with me here
But maybe he's learnt from how painful things were when he tried that route before?
He's not wrong. Senior management usually love M&A but the engineers hate them. For a number of reasons, trying to integrate the systems and workflows of two companies is a nightmare - especially as senior management usually want it done in no time with no budget. Then there's the fact that M&A always come with job losses. Of course management will always say there aren't going to be redundancies, but there always are. Not only that when M&A are even mentioned there will always be people who quit and of course senior management don't want to back fill those roles. Either way they like to call this loss of heads something like "synergy savings" because it sounds nicer than the alternatives. Either way they are always surprised to learn that if two separate companies amounted to X person hours of engineering time to support their customers then a single merged company supporting those same customers will still need X person hours of engineering time.
I don't want to think about how many times I've been through this. "Let's reduce the headcount by ooooh (wet finger in the air) 25% to account for projected synergy savings". Then a few months later "We seem to be paying out an awful lot in overtime, lets recruit more enghineers. About 33% should do it." Of course you've already lost all those years of experience and customer knowledge that you're not going to get back by recruiting new staff. And then the next M or A comes along and the whole process is repeated. One thing you can say for managers it they are consistent and never, ever learn from their previous mistakes.
"every day is a reason for celebration"
And that is life for the least talented bloviators with golden parachutes.
At least there's a ripe market for psychiatrists.