The much-anticipated sale of Subway appears to be a done deal as one of the world’s largest restaurant chains announced it would be acquired by Roark Capital.
Terms of the deal were not disclosed, but the Wall Street Journal, which broke the news about Subway being put up for auction at the start of the year, has put the sale price “at around $9.6 billion,” or slightly below the chain’s $10 billion asking price. The deal’s closure “is subject to regulatory approvals and customary closing conditions,” Subway said in the announcement.
Roark Capital, the Atlanta-based private equity firm with $37 billion in assets under management, beat out a number of other private equity firms to buy the sandwich giant from the two founding families. Roark controls Inspire Brands, owner of Jimmy John’s, Arby’s, Baskin-Robbins, Buffalo Wild Wings, Dunkin’, Rusty Taco and Sonic Drive-In. Roark’s extensive portfolio also includes Focus Brands, with brands including Cinnabon, Auntie Anne’s, Jamba and McAlister’s Deli.
Roark is no stranger to big franchise deals. It was involved in the second largest franchise deal of the last decade when Inspire Brands brought Dunkin’ in 2020 for $11.3 billion, winning the Franchise Times Deal of the Year. The largest deal in the last decade was when Burger King bought Tim Hortons in 2014 for $11.4 billion, leading to the creation of Restaurant Brands International.
Ab Igram, executive director of Babson College’s Tariq Farid Franchise Institute
“Private equity deals in franchising can go a lot of different ways, but I do think Roark is one of the best out there in terms of investments and, more specifically, restaurant investments,” said Ab Igram, executive director of Babson College’s Tariq Farid Franchise Institute. “They have the playbook, and they have the expertise in franchising and in restaurants. They’ll certainly bring value to a brand like Subway that has had its share of struggles but has been able to turn things around in recent years and looks to be heading in the right direction.”
It’s been a roller-coaster ride for the sub giant since its start. Late co-founder Fred DeLuca ran Subway for decades during the heyday of the brand before he was diagnosed with leukemia. His sister, Suzanne Greco, took the reins of the company in 2015 until she retired in 2018. Peter Buck, who lent DeLuca the money to open a sandwich shop in Bridgeport, Connecticut, in 1965 and helped co-found the chain, died in 2021. The surviving DeLuca and Buck families still have interests in Subway.
According to Reuters, the DeLuca and Buck families agreed to conditions known as earn-outs, which defer payment on part of the deal consideration with Roark. For the full selling price to be paid, Subway’s cash flow would need to reach certain milestones over a specified period after the deal closes, Reuters sources said.
With nearly 37,000 restaurants in more than 100 countries, Subway ranked seventh on the Franchise Times Top 500 last year with global sales of $17.5 billion. The sub chain became one of the world’s largest restaurant chains by aggressively building new locations, but struggled in the last decade when it oversaturated the market with small shops owned by single-unit franchisees whose profit margins were squeezed by customer promotions. The company’s problems were further exacerbated by increased competition from other sandwich chains like Jersey Mike’s, Firehouse Subs and Jimmy John’s.
The brand’s image was damaged when Jared Fogle, who had been the company’s longtime spokesperson, was imprisoned on child pornography charges in 2015.
The Miami-based sandwich giant (it opened a new global headquarters this year) has closed about 7,000 shops since its peak in 2015. It shed 2.7 percent of its shops in the United States in 2022, and underwent a multi-year brand transformation. In July, the company revamped its menu and rolled out in-store meat slicers. It also made a concerted effort in the past few years to bring more large-scale operators into the franchise system.
Earlier this month, the company announced a number of executive changes, including replacing Trevor Haynes, the president of North America, with Douglas Fry, who’s the current leader of Subway’s Canada operations.
John Chidsey, Subway CEO
The company began to turn things around in 2021 when it posted an estimated $17.5 billion in system sales, a 27.7 percent increase from 2020 and above the $16.1 billion it did in 2019. Progress has continued in the first half of 2023, when Subway reported an increase of 9.2 percent in same-store sales with its top 75 percent of locations (about 17,000 restaurants) up 14.5 percent and the top 50 percent of locations (about 11,500 restaurants) up 19.8 percent.
In July, the company announced its 10th consecutive quarter of positive sales at stores open at least a year.
“Over the past two years, we’ve made consistent progress across all areas of our business, driving impressive sales results and positive changes for our franchisees and guests,” said John Chidsey, Subway CEO. “This transaction reflects Subway’s long-term growth potential, and the substantial value of our brand and our franchisees around the world.”