In a significant deal that has garnered attention across the business world, Subway has announced its sale to private equity firm Roark Capital for a staggering $9.55 billion. The move follows an intense auction process that saw multiple competing bids vying for ownership of the renowned sandwich chain.
The Deal in Detail
The agreement between Subway and Roark Capital is valued at $8.95 billion, excluding the earn-out target. The deal stipulates that Roark and Subway must finalize the acquisition within 12 months. A crucial aspect of the deal is the inclusion of a 4% breakup fee, which serves as a protective measure in case antitrust regulators intervene and impede the transaction.
Roark Capital Emerges as the Victor
Roark Capital emerged as the successful bidder after a closely contested battle that included a last-minute challenge from a rival bidding group led by TDR Capital and Sycamore Partners. Both Roark Capital and the rival group submitted final bids of $8.75 billion, which equates to $8.25 billion excluding the earn-out. Roark Capital’s triumph will elevate it to the ranks of one of the largest restaurant operators globally.
Roark Capital’s Restaurant Portfolio
The acquisition of Subway adds to Roark Capital’s already impressive restaurant portfolio. Roark Capital controls Inspire Brands, which holds ownership of well-known restaurant chains including Jimmy John’s, Arby’s, Baskin-Robbins, and Buffalo Wild Wings. This extensive experience positions Roark Capital to leverage its expertise in restaurant brand expansion, particularly in the U.S. market.
Subway’s Evolution and Challenges
Subway, founded in 1965, embarked on a journey that saw it navigating fierce competition from rivals for several years. It underwent a significant transformation by revamping its menu and intensifying marketing efforts in 2021. These strategic changes bore fruit, evident in Subway’s 9.3% increase in same-store sales in North America during the first half of 2023.
Future Prospects and Conditions
As the ownership of Subway transitions, certain conditions are attached to the windfall that the owning families will receive. Referred to as an “earn-out,” this mechanism delays payment for a portion of the deal consideration. To unlock the full price, specific milestones must be achieved within a predefined period following the deal’s completion.
The acquisition of Subway by Roark Capital marks a significant development in the fast-food industry and highlights the value of strategic repositioning and adaptation in the face of evolving market dynamics. The deal’s impact on Subway’s global presence and business strategies will be closely watched by industry observers and consumers alike.
