Olo Inc recently reported significant growth in both revenue and customer base, just before agreeing to a $2 billion all-cash acquisition by private equity firm Thoma Bravo. The company’s software, which supports online orders for restaurant chains, generated $85.7 million in revenue for the second quarter, marking a 22% increase from the previous year and surpassing analyst expectations.

Adjusted operating income reached $13.1 million, also exceeding forecasts, while average revenue per unit rose by 12%. This indicates that customers are increasingly utilizing Olo’s technology. Despite a modest net income and negative operating income, the 9% growth in active locations reflects a healthy business model. However, with the acquisition deal pending, Olo has withdrawn its forecasts. The stock price has surged to 32 times expected earnings, up from 19 three months ago, leading analysts to advise caution as further upside appears limited compared to industry peers.

The implications of this deal are significant for the market. The excitement surrounding acquisitions can drive up valuations, as seen with Olo’s stock price exceeding analysts’ 12-month targets. Currently, few analysts predict additional gains, with only one recommending a buy. Other tech companies in similar sectors continue to receive more favorable outlooks, suggesting that private equity interest can elevate expectations even before a deal is finalized.

This acquisition highlights private equity's growing appetite for profitable software companies with consistent growth. As firms like Olo are acquired, the tech landscape may change, with successful public companies being taken private more frequently. This trend could limit investment opportunities for everyday investors and alter the dynamics of public tech markets.

In summary, Olo’s strong performance and the impending acquisition by Thoma Bravo illustrate the current trend of private equity firms targeting high-margin tech companies. This could reshape the investment landscape, emphasizing the need for investors to stay informed about market movements and potential shifts in available opportunities.