Roark Capital’s acquisition of Subway could be heading into a lengthy delay as the U.S. Federal Trade Commission has reportedly opened an investigation into whether the deal will give the private equity firm an unfair monopoly in the fast-food sandwich market.
The federal agency’s investigation, which was first reported by Politico this week, follows Roark’s agreement to purchase Subway for $9.6 billion in August. The Atlanta-based private equity firm controls Inspire Brands, which owns Jimmy John’s and Arby’s, two other giant sandwich brands. Roark, which focuses on consumer chains with franchise models, also owns Dunkin’, Buffalo Wild Wings, Baskin-Robbins, Rusty Taco and Sonic Drive-In, along with McAlister’s Deli and Schlotzsky’s through its Focus Brands platform.
Representatives from Roark and Subway did not immediately respond to request for comment about the investigation which, according to Politico’s sources, began earlier this month with a resolution likely months away. A spokesperson from the FTC responded with, “No comment.”
As Politico reporter Josh Sisco noted in his story about the investigation, merger reviews by antitrust regulators can often take a year or more and, “the FTC can either sue to block the merger, reach an agreement with the companies that alleviates its concerns, or take no action at all.”
In any merger review, regulators must first determine the market where they believe competition is harmed. The companies involved in the Subway deal are arguing “the FTC should widen its focus beyond sandwiches, saying consumers are choosing between a wider array of options when deciding what to eat, and that Roark owns only a small fraction of the total U.S. fast food market,” according to Politico’s unnamed sources.
Roark’s pending purchase of the sandwich giant was apparently predicated on a number of undisclosed revenue and unit goals the company needed to reach by a certain date.
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, put the sale price “at around $9.6 billion,” or slightly below the chain’s $10 billion asking price.
With $37 billion in assets under management, Roark reportedly beat out a number of other private equity firms to buy the sandwich giant from the founding DeLuca and Buck families, who both still have interests in Subway.
Roark was involved in the second largest franchise deal of the last decade when Inspire Brands brought Dunkin’ in 2020 for $11.3 billion, winning Franchise Times Deal of the Year recognition. 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.
Prior to Roark’s purchase of the company, Subway announced a shakeup of leadership with a slew of executive moves, including the appointment of a new president of North America.
Subway is in its third phrase of a multi-year brand transformation. In July, the company rolled out in-store meat slicers as part of that effort.
As one of the world’s largest quick service restaurant brands, Subway operates 26,567 restaurants in more than 100 countries. Subway finished 2022 with 20,576 units in the U.S. and is ranked No. 7 on the Franchise Times Top 400, with estimated global systemwide sales of $9.1 billion.
Despite its well-publicized struggles to grow, the company reported North America same-store sales increased by 9.3 percent in the first half of 2023, along with 10 consecutive quarters of positive sales.