Subway to be Sold to Roark Capital for $9.55 Billion
Subway, the popular sandwich chain, has agreed to sell itself to private equity firm Roark Capital for a staggering $9.55 billion. The deal comes after several rounds of bidding and negotiations.
Under the terms of the agreement, Subway’s owners, the DeLuca and Buck families, will be subject to certain conditions in order to receive their share of the windfall. This includes an earn-out provision, which defers a portion of the payment until Subway’s cash flow reaches specific milestones after the deal is finalized.
Sources familiar with the matter revealed that the total value of the deal, excluding the earn-out target, is estimated to be around $8.95 billion. Roark Capital emerged as the winning bidder, beating out a rival group led by TDR Capital and Sycamore Partners with a final bid of $8.75 billion.
The inclusion of the earn-out provision helped bridge the gap in valuation expectations between Roark Capital and Subway’s founding families. It also highlights the confidence that Roark Capital has in Subway’s potential for growth.
Upon completion of the sale, Roark Capital will become one of the largest restaurant operators globally. The firm already controls Inspire Brands, the parent company of various well-known restaurant chains, including Jimmy John’s, Arby’s, Baskin-Robbins, and Buffalo Wild Wings.
Industry experts have praised Roark Capital’s involvement in the deal, citing their experience in helping restaurant brands expand. Neil Saunders, Managing Director of GlobalData, stated that Roark Capital “brings more to the table than other investors would have,” particularly in the U.S. market where Subway’s growth has plateaued in recent years.
Subway first announced its intentions to explore a possible sale in February, attracting interest from multiple private equity firms, including Advent International, TDR Capital, and TPG. At the time, Subway hoped to command a sale price of over $10 billion due to its strong brand and international presence. However, some buyout firms argued that Subway’s U.S. business had become saturated, resulting in a lower valuation.
Owned by the DeLuca and Buck families since its inception in 1965, Subway faced fierce competition from rival fast-food chains until implementing menu changes and increasing marketing efforts in 2021. These initiatives have paid off, with Subway experiencing a 9.3% rise in same-store sales in North America during the first half of 2023.
The deal between Subway and Roark Capital is expected to be finalized within the next year, although it includes a breakup fee of 4% to account for potential regulatory obstacles. Upon completion, Roark Capital’s acquisition of Subway will solidify its position as a major player in the global restaurant industry.
Disclaimer: This article has been sourced from Reuters and has been edited for style and content.
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(Reporting by Anirban Sen and Abigail Summerville in New York and Deborah Sophia in Bengaluru; Editing by Arun Koyyur)