There is arguably no sector that has more margin pressure than restaurants. The industry is notorious for having low margins and constant labor shortages. And while today’s inflationary environment has introduced more uncertainty, new technology is providing a ray of hope — and an interesting outlook on M&A in the sector.
As in other sectors, technology helps restaurants reduce costs, increase efficiency, find and keep customers. Much of it started during Covid where, due to social distancing, businesses had to scramble to figure out how to offer online ordering.
Post-Covid, some companies have outperformed, while others, as Brown Gibbons Lang Managing Director Jason Myler put it, are on a “death march.”
“It’s historically been a very under-invested technology end market,” he adds. He estimates that $65 billion has been invested in the restaurant technology space since 2015.
“Restaurant operators are faced with complicated and sometimes daunting decisions in terms of where to start in terms of implementing and evolving their tech stack,” says Josh Benn, the global head of consumer and restaurant investment banking at Kroll. “In terms of back-of-the-house solutions, including supply chain and human capital management, there are next-generation leaders emerging that will likely become consolidators within this realm as well.”
Earlier this month, Valsoft Corp., a Canadian company that focuses on acquiring software businesses, bought MonkeySoft to mark its entry into the restaurant technology sector.
MonkeySoft helps restaurant operators deliver off-premises catering through online ordering platforms, order management systems, and offers sales and lead management capabilities.
“The restaurant technology space continues to evolve and there are numerous strategic conversations happening,” Benn says. “We have recently seen multiple announced transactions among software delivery platforms as well as within other sub-categories of the restaurant tech segment. Restaurants are acutely focused on driving growth and operational efficiency, and technology remains front and center in achieving those objectives.”
Dealflow
“In restaurant technology right now, it’s really a tale of two worlds,” Myler says. “You have high quality companies that have performed really well and others that are trying to chase a really good multiple with a good strategic buyer. Then you’ve got a host of other technology companies that just have to do something.”
High quality business will look to come to market because they are longer in their investment cycles from private equity or venture capital or they are saying ‘You know what, let’s just get out of this and move on,’ and cut their losses,’ according to Myler. “Like I said, it’s really a tale of two worlds.”
There are also PE firms that are looking to build platforms to create a one-stop shop for restaurant software services.
For example, restaurant technology company Restaurant365 last year acquired ExpandShare, which uses AI and content customization to automate and simplify training. “The impact of AI on everything is playing out in the restaurant tech world,” Myler says.
Restaurant365 is backed by Bessemer Venture Partners, Iconiq, KKR (NYSE: KKR), L Catterton and Serent Capital.
“I think the next 12 to 18 months are going to be very busy in M&A,” he says.
Reach out to Benn and Myler directly at: [email protected], [email protected].
