Sandwich chain Subway on Thursday said it will be sold to private equity firm Roark Capital, and has entered into a definitive agreement for the same. Though it has not disclosed financial details about the deal, a Reuters report pegged it at $9.55 billion.
In a company statement, Subway CEO John Chidsey said, “This transaction reflects Subway’s long-term growth potential, and the substantial value of our brand and our franchisees around the world. Subway has a bright future with Roark, and we are committed to continuing to focus on a win-win-win approach for our franchisees, our guests and our employees.”
The transaction comes on the heels of Subway announcing its 10th consecutive quarter of positive same-store sales.
“The company will continue to execute its strategy with a focus on sales growth, menu innovation, modernisation of restaurants, overall guest experience improvements, and international expansion,” Subway said in the statement.
JPMorgan is serving as financial advisor and Sullivan & Cromwell LLP is serving as legal counsel to Subway. Timing is subject to regulatory approvals and customary closing conditions.
Roark is a private equity firm with $37 billion in assets under management.
Subway, which has dual headquarters in Miami and Connecticut in the US, has about 37,000 restaurants in over 100 countries. It was founded in 1965 and is still owned by its founding families.
However, in the US, it has been losing market share in recent years to fast-growing rivals like Panera and Firehouse Subs, which feature more varied menus and newer stores. Subway has been trying to catch up; in 2021 it refreshed its menu and last year it announced a line of chef-developed sandwiches.
According to a Reuters report quoting sources, Subway will sell itself to private equity Roark Capital for $9.55 billion after agreeing to attach conditions to some of the windfall the two families that own it will get, ending a long-drawn auction that saw several competing bids.
These conditions, known as an earn-out, defer payment on part of the deal consideration, the sources familiar with the matter said. For the full price to be paid, Subway’s cash flow would need to reach certain milestones over a specified period after the deal closes, they said.
The deal was valued at $8.95 billion, excluding the earn-out target, the report said. Roark beat out a late challenge from a rival bidding group led by TDR Capital and Sycamore Partners, which submitted a final bid of $8.75 billion or $8.25 billion excluding an earn-out, according to people familiar with the matter.
“Roark brings more to the table than other investors would have,” said Neil Saunders, managing director of GlobalData. Its experience of helping restaurant brands grow will be helpful, “especially in the U.S. market where it remains well below the peak it hit a few years ago”, he said.
In February, Subway had said it was exploring a possible sale, drawing interest from private equity firms including Roark, Advent International, TDR Capital and TPG as well as Goldman Sachs’ asset management arm.
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