The restaurant technology market is hitting its stride to close out 2024.
Publicly traded restaurant tech stocks are rising, and there’s been a steady stream of acquisitions and funding rounds. The activity reflects restaurants’ growing appetite for new technology: More than three-fourths said they expected to increase their tech spending this year, according to an industry outlook report from tech supplier Toast.
“Investor interest is growing in the restaurant technology sector, driven by strong top-line growth, increasing adoption of operational solutions, and consumer lifestyle changes,” wrote investment bank Houlihan Lokey in a market report published this month.
It comes as more restaurant transactions continue to shift to digital channels. Recent data from Circana shows that 18% of orders now come via the web, mobile apps, kiosks and other digital channels, including 9% of on-premise orders.
That has been good for companies that offer digital ordering software like Olo and Toast.
“It’s because of the digital transformation of the industry itself,” said Olo CEO Noah Glass, when asked why the company has continued to grow even as restaurant sales overall have slowed.
Last quarter, Olo added about 3,000 new restaurant locations, the most of any quarter over the past two years, and total revenue rose 24% year over year.
Toast, which offers a range of tech products for restaurants, saw revenue growth of 28% last quarter and raised its outlook for the rest of the year. PAR, another large tech supplier, reported a revenue increase of nearly 41%.
Third-party delivery apps DoorDash and Uber Eats, meanwhile, are coming off another big quarter. Order volumes rose 20% for DoorDash and 16% for Uber Eats.
The average share price of those five companies is up more than 62% year to date. With the exception of Uber, they are still below their pandemic-era peaks, but they are gaining momentum after a couple years of sluggishness.
Private restaurant tech companies have also seen renewed interest from investors this year. A selection of 12 financing deals compiled by Houlihan Lokey totaled nearly $1.5 billion in funding. The biggest were Wonder ($700 million), Buyers Edge ($425 million) and Restaurant365 ($175 million).
After a surge in restaurant tech investments in 2020 and 2021, investors became stingier due to rising interest rates and an emphasis on profits over growth. Some startups that raised large sums of money went on to shrink or disappear. Now that environment seems to be thawing out as the economy stabilizes.
In another positive sign for the sector, there has been a notable increase in M&A activity this year.
Some of the larger deals include American Express’ acquisition of reservations platform Tock for $400 million; Shift4’s acquisition of POS provider Revel Systems for $250 million; and Wonder’s agreement to buy Grubhub for $650 million.
In recent weeks, Paytronix was acquired by U.K. tech company The Access Group, and QSR Automations received a majority investment from private-equity firm Battery Ventures, both for undisclosed amounts.
While every deal is unique, a common thread has been a desire by the buyers to add to their product selection and position themselves as “end-to-end” providers.
PAR, which made two large acquisitions this year, is currently shopping for “bolt-ons”—products that will expand what it can offer restaurants. It sees a robust market for those types of deals.
“It seems like there's more companies for sale than there are historically, and definitely some larger transactions have happened,” CEO Savneet Singh told analysts last week, according to a transcript from financial services site AlphaSense. “What we haven't seen is a lot of the small- or medium-sized transactions come through yet. And I think that's next.”
Houlihan Lokey noted that the size and fragmentation of the restaurant tech landscape makes it ripe for more consolidation. Falling interest rates should only add fuel heading into 2025.
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