Dive Brief:
- Subway has entered into a definitive agreement to be acquired by Roark Capital, which owns Inspire Brands and Focus Brands, the company said in a press release Thursday.
- The winning bid was for over $9 billion, according to Reuters, marking the largest sale of the year in the restaurant space.
- Subway confirmed it was selling itself in February after rumors emerged in January that it was seeking a roughly $10 billion sale.The last multi-billion dollar purchase of a restaurant company occurred in 2020, when Roark’s Inspire Brands bought Dunkin’ for $11.3 billion.
Dive Insight:
Within the last two years, Subway has shifted its strategies, deploying new menus, changing its franchising focus and launching redesigns across its system. The company invested $80 million in its latest menu innovation, fresh-sliced meats, by installing deli-slicers in 20,000 restaurants in late 2022 through 2023.
Subway said last year that it would focus on well-resourced multi-unit owners compared to its previous single-unit owner strategy. Earlier this year, the company signed five new multi-unit owner agreements, which included the consolidation and transfer of over 230 units to new operators. The chain has also been making big moves globally, signing a deal this year to build 4,000-units in China over the next 20 years.
The company ended the first half of the year with same-store sales growth of 9.3% within North America and 9.8% globally, boasting 10 consecutive quarter of same-stores sales growth. This positive performance followed after several years of unit count declines.
Subway’s improved position appeared to spur interest from several buyers initially. In April, there were over 10 potential buyers performing due diligence, according to The Wall Street Journal. Bids reportedly ranged from $8.5 billion to $10 billion, according to Reuters.
Potential buyers reportedly included Bain Capital, TPG, Advent International Corp., TDR Capital, Roark Capital and Goldman Sachs Group’s buyout arm, according to Reuters. In early May, JP Morgan Chase & Co., Subway’s financial advisor, created a $5 billion debt financing plan that could support a potential $10 billion buyout.
Subway extended the bidding process earlier in the summer amid the emergence of new possible buyers, a move that Restaurant Business reported was intended to potentially drive up the sale price.
Roark, which holds $37 billion in assets under management, ultimately emerged as the victor and will add another big brand to its robust restaurant portfolio, much of which is managed under Inspire Brands and Focus Brands. Its biggest buyout under Inspire’s umbrella was Dunkin’ for over $11 billion.
"This transaction reflects Subway's long-term growth potential, and the substantial value of our brand and our franchisees around the world," John Chidsey, CEO of Subway, said in a press release. "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."
Despite early predictions that M&A activity would be slow during the first half of 2023, several deals have occurred within the last six months.
In August, Fiesta Restaurant Group sold itself for $220 million to a private equity firm while Fogo de Chao swapped private equity owners. Earlier this year, Darden bought Ruth’s Hospitality Group for $715 million, its first buy since acquiring Cheddar’s Scratch Kitchen in 2017. In March, Main Squeeze Juice. bought competitor I Love Juice Bar, which will nearly double its store count, and a private equity firm bought Firebirds Wood Fired Grill.
