Analyst weighs in on potential impact of Carahsoft raid

The Washington-area offices of Carahsoft Technology were searched on Tuesday by federal agents, according to media reports. The IT and cyber contractor, the German software developer SAP (SAP), and other companies are reportedly being probed by U.S. officials for potentially conspiring to overcharge government agencies over the course of a decade. In a research note commenting on the Carahsoft raid, Piper Sandler noted that based on its analysis of publicly disclosed federal contracts, ServiceNow (NOW) and Okta (OKTA) have the highest portion of federal contract dollars sourced through Carahsoft in its coverage.

RAID: The Washington-area offices of product reseller Carahsoft Technology were searched on Tuesday by federal agents, Bloomberg’s Jake Bleiberg and Margi Murphy reported, citing people familiar with the matter. FBI and Defense Criminal Investigative Service agents were seen at Carahsoft’s headquarters in Reston, Virginia, collecting documents and employee computers, said John Weiler, CEO of the IT-Acquisition Advisory Council. “Carahsoft is fully cooperating on this matter,” said a representative for the company. Carahsoft spokesperson Mary Lange described the search as “an investigation into a company with which Carahsoft has done business in the past.

Among the vendors listed on Carahsoft’s website are Microsoft (MSFT), Google (GOOGL), Oracle (ORCL), AWS (AMZN), Palo Alto Networks (PANW) and CrowdStrike (CRWD).

On Monday, Bloomberg’s Jake Bleiberg reported that SAP, product reseller Carahsoft and other companies were being probed by U.S. officials for potentially conspiring to overcharge government agencies over the course of a decade. Since at least 2022, Justice Department lawyers have been looking at whether SAP — which makes accounting, human resources, supply chain and other business software used across the globe – illegally conspired with Carahsoft to fix prices on sales to the U.S. military and other parts of the government, according to federal court records filed in Baltimore.

IMPACT TO OKTA, SERVICENOW: Commenting on the news, Piper Sandler says Carahsoft raid opens potential volatility to federal year-end results. In a statement, the FBI confirmed the raid but declined to provide any further comment. Given Carahsoft is one of the largest IT solution providers to the U.S. government and the timing of the raid is very close to the end of the federal fiscal year, the firm believes this has the potential to disrupt deals in the pipeline. Based on Piper’s analysis of publicly disclosed federal contracts, it notes that ServiceNow and Okta have the highest portion of federal contract dollars sourced through Carahsoft in its coverage, with both companies seeing over 40% of disclosed federal contract dollars coming through Carahsoft.

PRICE ACTION: In morning trading, shares of SAP and ServiceNow have dropped about 3% apiece to $224.32 and $895.40, respectively, while Okta’s stock has slipped almost 1.5% to $74.77.