Olo was run like dog shit.
Not even up for debate.
Any exit interview would tell you as much.
It’s why Thoma Bravo started cleaning up the excess after acquiring Olo.
Kind of wild that Thoma Bravo has kept Noah Glass as CEO, but maybe it’s simply as a figurehead, with the actual power concentrated in the hands of better stewards of capital.
But that’s neither here nor there.
The problem as we see it is that Olo simply isn’t the anchor for a platform play.
Sure, Thoma Bravo will tuck in a loyalty solution, which is relatively cheap and also pretty replaceable.
Side note: Their choice of Spendgo is a bit odd considering that Spendgo doesn’t have the largest overlap with Olo’s customer base, which skews more enterprise. Our best guess is that Spendgo was acquired because it had a clean cap table and it would be cheap: 2x revenues since growth was tepid.
Buy a loyalty company for < $10M, pay little upfront cash and shove the full consideration into an earn out which gets impossible to hit if not funded properly.
Classic PE structure.
But the anchor asset here is a POS.
And POS isn’t cheap or easy to build.
Sure, Olo might become the POS… in 50 years.
Thoma Bravo will own Olo for 3-5.
Unit then, digital ordering is too small to be the full fledged POS.
Huge uptick of online ordering during COVID, but it’s receded back.
Because people still want to experience eating out.
There is always going to be some type of occasion for dining away from home.
Celebrations, work events, etc..
And Olo is as risk of being replaced if a POS company could offer a compelling ordering solution, because the POS is dog, not the tail.
Downmarket, there’s no need for Olo as you have very well funded POS companies operating already: SpotOn, Square, Toast.
UberEats and Doordash also offer online ordering solutions for the long tail that make it impossible for Olo to compete, frankly.
So Olo is stuck in enterprise, being pushed further upmarket as the Toasts and Doordashs continue to improve their features and move upmarket themselves.
But Thoma Bravo really doesn’t have a POS asset it can buy.
At least not without risk.
And private equity hates risk: they make their money on structure and covenants, not on execution.
Here are the viable options with pros and cons.
NCR
Pro is that NCR has the most amount of account overlap with Olo of any realistic POS option. NCR has been pushed out of SMB by Toast and others, and has maintained their relationships with upmarket operators in both table service and limited service. In fact, NCR kept Firehouse and Buffalo Wild wings.
Con is that there is a lot of technical work to do to modernize Aloha. The previous executives were preoccupied with building new headquarters, or living entirely removed from HQ in NYC. Or busy engineering their own payday instead of fixing a broken company.
NCR’s new management seems willing to listen and make changes, but man if it isn’t almost the too-little-too-late aphorism. This is too much risk for PE in our opinion.
PAR
Pro is that it’s well run, relatively modern, and has clear overlap. Yes, PAR’s Menu acquisition would become redundant (or maybe it’s actually better than Olo on the tech side, that would require more investigation). But there are otherwise a lot of synergies. And if these two merged there would be pricing power for ordering since Menu is the only large threat to Olo at the moment – Lunchbox imploded with a sale to Shift4, and Onosys is still much smaller.
Con is that it’s squarely in limited service, while we’d venture more than half of Olo’s clients need tableservice features. This means PAR would have to build features to catch up, and PE hates spending money on R&D.
Qu
Qu has picked up nominal wins, but the rubber meets the road when it rolls out.
That’s the hard work.
Until Qu can prove it successfully rolls locations, it’s even more subscale than PAR, likely burning significant money, and priced at a valuation that Thoma Bravo can’t get over.
That and Qu is explicitly limited service, which again means it offers no more coverage than PAR would.
Pro is more modern tech stack and likely the cheapest total consideration, Con is just about everything else.
Thoma Bravo does not want to do the work of fixing a subscale business and trying to get it cross sold into Olo locations.
Especially since enterprise POS sales cycles are literally decades, this doesn’t work for Thoma Bravo
We can’t think of a POS asset that Thoma Bravo can reasonably acquire without creating work for itself.
PE hates work.
PE “work” is a golf course and a spreadsheet.
Anything beyond that starts impacting your handicap.
It’s more likely that Thoma Bravo just cuts Olo to the bone, cross sells some smaller things to boost EBITDA, and then makes their money on debt.
Leave the hard moves for someone else.
And in 5 years maybe Toast (possibly Doordash) will just buy Olo from Thoma Bravo for the account base as they will have their own robust, enterprise POS assets.
Remember, PE is in the business of avoiding risk and making money with structure.
Don’t think too far into what’s possible: think about the boring ways to make money.
That looks a lot more like small tuck ins than something that redefines an industry.
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