Subway sold to Roark Capital

November 2023 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

November 2023 Issue

Subway announced it is to be acquired by affiliates of private equity firm Roark Capital. The deal brings to an end Subway’s six-month long search for a buyer, as well as the company’s near six-decade run as a family-owned business.

Though the terms of the deal have not been disclosed, the purchase price is believed to be around $9.6bn, slightly below Subway’s $10bn asking price. The deal is one of the biggest acquisitions in fast food history, coming in just under Inspire Brands’ $11.3bn purchase of Dunkin’ in October 2020.

“This transaction reflects Subway’s long-term growth potential, and the substantial value of our brand and our franchisees around the world,” said John Chidsey, chief executive of Subway. “Subway has a bright future with Roark, and we are committed to continuing to focus on a win-win-win approach for our franchisees, our guests and our employees.”

Roark Capital has around $37bn in assets under management and specialises in ‘asset light’ turnaround situations that rely heavily on franchise royalties. By agreeing the deal for Subway, the firm is set to become one of the world’s largest restaurant owners. It is already a major player, owning holdings in a number of companies in the US including Jimmy John’s, Sonic, Auntie Anne’s, Carvel, Cinnabon, Jamba Juice, McAlister’s Deli, Moe’s Southwest Grill, Schlotzsky’s, Nothing Bundt Cakes, Miller’s Ale House, Culver’s and Jim ‘N Nick’s BBQ.

The company also controls CKE Restaurants, which owns burger chains Hardee’s and Carl’s Jr., and retains a small stake in The Cheesecake Factory. Its franchise focus extends to other industries, including the automotive, fitness and home service sectors.

Subway has undergone a period of considerable transformation in recent years. It launched a revamped menu, undertook significant store renovations and placed a bigger emphasis on international growth. The company has remodelled 10,000 of its US restaurants and recently spent $80m to provide its 20,000 US restaurants with deli meat slicers, a first for the brand.

In July, the company announced its 10th consecutive quarter of positive sales at stores open at least a year, including a 9.5 percent increase at its North America locations. However, despite these improvements, the number of US Subway stores declined to 20,576 last year according to Technomic – a notable decrease from its peak in 2015 when it had 27,219 locations.

While the chain is still closing franchised locations, the pace has slowed down considerably of late. The chain shuttered 571 units last year, down from the more than 1600 restaurants it closed in 2020. The company put itself up for sale in February.

Subway was once the world’s largest restaurant chain by unit count; however, it has struggled following the 2015 death of Fred DeLuca, co-founder and long-time chief executive. Since Mr DeLuca’s passing, more than 6000 US restaurants have closed and the chain also closed international locations as franchisees struggled with weak sales and reduced profitability.

Despite the drop in US locations, the company’s US revenue has rebounded in recent years. In 2022, it was up to $9.8bn, a 4 percent increase on 2021, but still well down from its 2015 peak of $11.5bn. Subway currently controls about 23 percent of the $43bn US sandwich and deli market, according to Technomic, down from 34 percent in 2017.

In August, Subway announced that Trevor Haynes, president of North America operations, was leaving the company after 18 years. In September, he was replaced by Douglas Fry, former leader of Subway’s Canada operations.

Given Roark’s level of investment in the food and beverage sector, it seems likely that antitrust regulators will take more than a passing interest in the company’s Subway acquisition, though the Department of Justice and the Federal Trade Commission are often reluctant to block PE-driven deals.

Richard Summerfield