Roark Capital Reportedly Plans To Purchase Subway For Up To $9.55 Billion
2023 is only halfway over and the year has already seen some major changes to the fast food sector. Wendy's is returning to the late-night game and Chick-fil-A announced plans to construct a 75-car drive-thru. Now in the most notable purchase since Campbell Soup Company bought Rao's pasta sauce (earlier this month), Subway has been purchased by private equity firm Roark Capital Group. The potentially $9.55 billion deal, ($8.95 billion with a possible $600 million earn-out) was announced on Thursday and represents Subway's total valuation including current debt and anticipated future financial performance.
If you haven't heard of it, Roark Capital is a savant restaurateur for managing franchise business models. The team is currently partners with The Cheesecake Factory, Auntie Anne's, Cinnabon, Arby's, Baskin Robbins, Buffalo Wild Wings, Carl's Jr. and Hardee's, Dunkin', and many other prominent businesses within and beyond the food service industry. Roark even works with Subway competitor Jimmy John's, managing an estimated $37 billion in assets.
The dealings started back in February in an auction-like process that caught the eye of multiple private equity firms, with Roark Capital coming out on top. Prior to the purchase, Subway belonged to the DeLuca and Buck families — which reportedly hoped to sell the global chain for $10 billion, via Reuters. It isn't a done deal yet, however. The purchase will remain unclosed for at least two years, during which Subway's sales will have to reach an undisclosed predetermined level for the earn-out provision to apply.
Tide shifts and new ownership
Subway has been making a steady comeback after several years of sales declines. The beloved sandwich chain was rocked by a devastating tag team of the 2020 pandemic, the death of co-founder Fred DeLuca, and the Jared Fogle scandal in 2015. The nationwide labor shortage, rising operation costs due to inflation, and the subsequent scramble to recover by opening what proved to be too many new franchise locations delivered more blows.Now, Subway recently announced an increase in average same-store sales for 10 fiscal quarters in a row. The chain saw record-high sales in 2021, surpassing anticipated figures by a whopping $1.4 billion and setting the chain up for another high-performing sales year in 2022. Online orders grew by more than 200% between 2019 and 2021, and same-store sales rose 9.2% in 2022 alone.
Given these positive figures, the sale to Roark might seem like confusing timing. But, as Subway CEO John Chidsey shares in a press release, bringing expert advisors to the table could be a strategic move to keep the growth rolling. "This transaction reflects Subway's long-term growth potential, and the substantial value of our brand and our franchisees around the world," explains Chidsey, calling the Roark deal "a win-win-win approach for our franchisees, our guests, and our employees." Indeed, future orientation seems to be the name of the game for Subway looking forward. The chain recently launched an $80 million initiative to install in-store deli slicers, equipping every U.S. location with freshly sliced meat.