Roark Capital is in the process of acquiring Subway, putting an end to the sandwich chain’s over fifty years of being under family ownership. This signifies a fresh chapter for the company that has been facing difficulties.
The declaration made on Thursday concludes the chain’s protracted selling procedure, which was publicly initiated in February. Allegedly aiming for a substantial $10 billion, Subway’s high valuation deterred numerous potential buyers such as restaurant conglomerates. As a result, the competition in the bidding war was primarily among private equity firms. Among the entities reportedly vying for the acquisition were TDR Capital and Sycamore Partners.
While Subway and Roark Capital have refrained from disclosing the exact price of the transaction, the Wall Street Journal indicated on Monday that the final offer from Roark was approximately $9.6 billion.
Roark Capital’s current portfolio consists of over a dozen restaurant chains. Among them, Subway surpasses all in terms of the number of restaurants and boasts higher annual sales than all except Dunkin’.
Under the umbrella of the holding company Inspire Brands, Roark holds ownership of Dunkin’, Baskin-Robbins, Sonic, Arby’s, Buffalo Wild Wings, and Jimmy John’s. Furthermore, operating under Focus Brands, the company possesses Auntie Anne’s, Carvel, Cinnabon, Jamba, McAlister’s, Moe’s Southwest Grill, and Schlotzsky’s.
In response to the challenges posed by the early days of the Covid pandemic, Roark also injected $200 million into the Cheesecake Factory to aid the struggling chain and prevent insolvency.
“In a fundamental sense, Roark Capital brings a more comprehensive package to the situation compared to what other investors might have offered. Although the finalisation of the deal was based on tangible monetary assets, the result is favourable,” noted Neil Saunders, a retail analyst and the Managing Director of GlobalData analytics.
Subway’s Future Under Roark Capital
Roark intends to maintain Subway as an independent entity within its portfolio, as stated by Subway’s CEO John Chidsey.
Subway, under the leadership of CEO John Chidsey since 2019, has been actively working to reverse its business trajectory. The company has overhauled its menu, enlisted new franchisees, and made substantial investments in technology. Demonstrating the potential effectiveness of these efforts, the company’s same-store sales rose by 9.8% in the first half of the year, indicating that the initiatives to revitalise the business may be gaining traction.
“In a statement on Thursday, Chidsey expressed that this transaction underscores Subway’s enduring potential for growth and the significant value carried by our brand and our franchisees worldwide.”
Established in 1965 by Fred DeLuca and Peter Buck, Subway’s journey began with a single sandwich shop in Connecticut and eventually evolved into a global restaurant powerhouse.
However, for approximately a decade, the company has been grappling with declining sales. Its widely recognized $5 footlong sandwich promotion and ambitious expansion efforts created challenges for the profitability of franchisees. The chain’s predicament was exacerbated by the high-profile legal case involving former spokesperson Jared Fogle and the passing of CEO DeLuca, both of which occurred in 2015.
Subway’s Evolution: Outlet Numbers, Ownership Changes
By the close of 2022, Subway’s count of operational outlets in the U.S. stood at approximately 20,600, marking a decrease from its zenith of 27,100 in 2015, as outlined in franchise disclosure documents. Although the chain continues to cease operations of franchised establishments, the pace of closures has notably decelerated. The past year witnessed the closure of 571 units, a significant reduction from the 1,600-plus restaurants that were shut down in 2020.
Following his passing, Fred DeLuca’s share of the company was inherited by his family, while Peter Buck, who passed away in 2021, left his share to a charitable organisation managed by his sons. In a conversation with Restaurant Business Online, John Chidsey mentioned that he successfully persuaded both families to contemplate the idea of selling the company.
Conclusion
Roark Capital’s acquisition of Subway marks a pivotal shift from family ownership, signalling a new phase for the struggling company. The lengthy selling process culminated with Roark’s undisclosed bid. Amid challenges, Subway’s transformation efforts under CEO John Chidsey reflect promise, with rising same-store sales. The complex history of ownership changes and closure trends further shape Subway’s evolution.
