SpotOn acquired Appetize POS for roughly 10x revenues, which is cheap considering deals are getting done at 40x for fast growing companies.
The read between the lines?
Appetize likely wasn’t growing that fast.
Cuz POS is hard.
Turns out POS in enterprise is even harder.
But it’s still a looming question for IPO-darlings like Toast, whose CEO was recently asked how Toast intends to tap into the enterprise segment to justify their ridiculous valuation (that last jab is courtesy of our analysis, though we think Toast will gleefully support customers under 8% effective payments rates if they can get away with it – in which case their valuation is actually very reasonable since ARPU would 8x).
SpotOn raised $300M at $3.15B post as part of the Appetize acquisition, and we see two reasons why they sanctified the marriage.
First, Appetize brings large consumer logos to Spoton like Disney and sports stadiums. SpotOn is thinking very far ahead of the curve here, incorporating crypto and consumer wallets, much like Square. Having a healthy view for the long term, SpotOn likely put a strategic value on those particular relationships for social proof.
Second, SpotOn could leverage Appetize’s installation and feature sets in mid-market restaurants to better penetrate that segment of the industry.
It’s no secret that enterprise restaurants have been a problematic segment of the market for cloud upstarts, inclusive of POS and other technologies broadly. On the POS side, Brink has a good (and arguably best) handle on enterprise quick service, with Revel and Qu making material inroads.
Yet it’s been 10+ years since these cloud POS companies were founded, and there are probably 150,000 US restaurant locations that would meet the definition of an enterprise quick service or fast casual location, and another 75,000 that would meet this definition for table service (a market segment that is drastically underserved by cloud POS, we might add).
Depending on the data source you use, it looks like 30% of the US restaurant market comprises locations that are part of a 50+ unit chain.
In other words, it’s a pretty non-trivial part of the total market.
Well, Appetize gives SpotOn a faster path to that market from a feature functionality perspective. In theory. It still remains to be seen how much of an accelerant this ends up being, because Appetize didn’t exactly have a large roster of conventional stand-alone (or whatever adjective you want to use for non-stadium/concession foodservice) restaurant concepts.
One of the things we’ve come to appreciate about the SpotOn management team is their honest appraisal. We’ve never gotten this out of NCR or Toast (at least in the past five years in the latter’s case), which is probably why we think they’re morally-devoid organizations.
“Appetize does a lot of things for us that we didn’t really know how to do. SpotOn doesn’t know how to RFP. Appetize delivers that in spades. We don’t have a ton of enterprise customers and Appetize has nearly exclusively handled enterprise engagements and has built a very good plackbook around how to do that. Appetize can clearly teach us a lot about branding given their wins at some of the country’s largest retail brands.”
Zach and Matt Hyman
We suspect that this transparent approach is what convinced Appetize’s team to roll a good chunk of their purchase consideration into SpotOn instead of taking it off the table. Earnouts are common, but voluntarily rolling cash into the acquirer is not.
In the restaurant vertical there are three looming enterprise POS assets that someone like Toast will need to consider buying (if they can put aside their own hubris, which has been impossible thus far): Par, Qu, and Revel.
SpotOn has made their acquisition of choice and it will be up to the market to sort out who takes share from here.
May the best product win.
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