Healthy margins and low customer turnover are two of the reasons Par Technology Corp. struck a deal to buy Tampa software developer Restaurant Magic for $42 million.
The deal, announced late last week, highlights the increasing value of maturing Tampa-St. Pete technology firms amid efforts to grow the local tech sector.
Par (NYSE: PAR), based in a New Hartford, New York, will pay $13 million in cash, $27 million in restricted shares of Par common stock and $2 million by delivery of a subordinated promissory note. The deal is expected to close before the end of the year. After it closes, the sellers will have a chance to earn additional purchase price consideration subject to the achievement of certain post-closing milestones, a filing with the U.S. Securities and Exchange Commission said.
The owner of Restaurant Magic are the Drew D. Peloubet Family Trust DTD 6/29/09, Steven A. Roberts and Gary Saling. Drew Peloubet is chairman and CEO of Restaurant Magic and Roberts is founder and president.
The combination of the two companies will create an industry-leading front to backend cloud technology solution for restaurants, Peloubet said in a news release.
Restaurant Magic, founded in 1989, developed Data Central, a suite of cloud back office applications to help restaurants achieve operational and financial goals. The company provides midsized and large enterprise restaurant organizations with inventory management, food management, labor scheduling, detailed reporting and analytics. The tools are designed to cut food costs and improve overall customer service.
Par Technology provides point of sale (POS) solutions to the restaurant and retail industries. The point of sale Software-as-a-Service business, dubbed Brink, has been installed in 8,800 restaurants nationwide, and its point of sale hardware has 60 percent penetration in key brands such as McDonald’s, KFC, and Pizza Hut, according to a 2019 investor presentation.
Par separately has a government reporting segment that provides computer-based system design, engineering and technical services to the Department of Defense and various federal agencies.
Par’s strategy to acquire Restaurant Magic fits directly with its goal to expand in the enterprise restaurant technology space, said Savneet Singh, Par Technology president and CEO.
“With this acquisition, we expect to gain scale in the restaurant industry, bring and onboard an excellent team to understand selling to larger-sized restaurant customers with leading solutions. We believe this acquisition will enable us to take the next step in our growth strategy,” Singh said during a conference call with analysts.
He said Restaurant Magic is a “very high-quality product,” with a run rate near $8 million and growing. Gross margins are near the traditional software margins of around 70 percent to 80 percent.
“They’re very healthy traditional software margins, and as I said, the growth profile is quite exciting,” Singh said. “And one thing we forgot to mention that I think is also interesting is that the churn is great. The churn is, right now, less than 3 percent. So a very, very high-quality business.”
The two companies have had some common customers. Restaurant Magic has about 5,300 active customers, with at least a couple of thousand of those directly overlapping with Par’s customers, Singh said.
“What’s important to highlight here is we’ve been working with Restaurant Magic for many years as one of our back-office providers for the Brink solution. And we’ve had a fantastic time working with them, operating with them and have been impressed the entire way. And so our history and having shared customers paved probably the road map for this deal,” Singh said. “But I suggested, they are in a number of conversations that we are not, which is part of our excitement around the deal.”