ServiceNow CEO Bill McDermott was a big dealmaker at SAP, but he's taking a different approach today

Key Points
  • Since taking over as CEO of ServiceNow late last year, Bill McDermott has been more focused on organic growth than acquisitions.
  • That's a big change from SAP, where McDermott led the multibillion-dollar purchases of Qualtrics, Concur and Callidus Software.
  • He says that SAP's decision this week to take Qualtrics public justifies the high price the company paid in 2018.
Bill McDermott, CEO of ServiceNow.
Adam Jeffery | CNBC

The last time ServiceNow CEO Bill McDermott orchestrated a big acquisition was in late 2018, when he was running SAP and led the $8 billion purchase of Qualtrics. Some analysts and investors at the time questioned the steep price.

McDermott says that skepticism has clearly been put to rest.

SAP announced this week that it's spinning out Qualtrics through an IPO, taking advantage of the stock market's favorable view of high-growth software companies, particularly those that generate profit. Analysts at JMP said in a report after the announcement that Qualtrics has an enterprise value today, based on conservative growth estimates, of about $11.4 billion.

"Any question on valuation has more than been answered," McDermott told CNBC in an interview late Wednesday. "It's a premium asset and always has been."

SAP will still own the majority of Qualtrics and said in a press release that it will remain its "closest and most important co-innovation and go-to-market partner."

McDermott's comments came after ServiceNow reported better-than-expected second-quarter results and raised its third-quarter forecast. The stock slipped after hours on Wednesday, however, as billings guidance came in below estimates.

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McDermott was named CEO of ServiceNow in October, shortly after leaving SAP.

ServiceNow, whose cloud-based software automates IT and employee workflow, has emerged as one of the most valuable cloud software companies, with a market cap of $85 billion. The stock has climbed 51% this year. Customers from JPMorgan Chase to the state of Montana turned to the software during the coronavirus pandemic to manage workflows with employees and residents all working from home and dispersed.

ServiceNow is a very different company than SAP. It was born in the cloud and has expanded organically with its homegrown software. At SAP, McDermott led the purchase of not only Qualtrics but also Concur for $8.3 billion in 2014 and Callidus Software for $2.4 billion in 2018.

While he's not averse to using ServiceNow's equity to buy growth, he's in no hurry to do so. McDermott said the company's single platform allows it to add functionality and deploy new services quickly, without having to worry about updating a bunch of disparate systems, or what McDermott calls "platform debt."

"One thing we're jealously protective of here is our engineering pride," McDermott said. "Agility is our competitive advantage."

For example, as it became clear that customers would be dealing with a complicated return to work environment, ServiceNow rolled out new apps in a matter of weeks designed for a safe workplace, like contact tracing for employees and automated cleaning tasks.

Still, McDermott isn't ruling anything out when it comes to future deals.

"We're at a market cap where big things are totally possible," he said. 

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