According to sources familiar with the matter, Atlanta-based private equity firm Roark Capital is reportedly close to finalizing a deal to acquire the Subway sandwich-shop chain. The firm owns a portfolio of popular restaurant brands, including Arby’s, Baskin Robbins, and Dunkin’, and has been engaged in a competitive auction for Subway, offering $9.6 billion. Subway has faced challenges in recent years, including declining sales and controversies regarding the quality of its ingredients. Roark is expected to bring a fresh perspective to revive the struggling brand.
Key Points
1. Atlanta-based private equity firm Roark Capital is reportedly nearing a deal to purchase the Subway sandwich-shop chain. The firm, which owns Inspire Brands and several other restaurant brands, has been engaged in a long auction process for Subway and has offered $9.6 billion for the chain.
2. The sale process for Subway has been lengthy, lasting for over seven months. The chain has faced challenges, including soaring interest rates and concerns about an economic slowdown, which have made debt more expensive and less available for potential buyers.
3. Subway has experienced a decline in sales and store closures in recent years. The chain’s global sales peaked in 2012 at around $18 billion but have since declined. In addition, Subway faced a menu crisis when tests revealed issues with the content of its chicken and tuna. The company has made efforts to revitalize the brand, including a major menu overhaul focused on freshness.
Rumors of Roark Capital’s Acquisition of Subway Intensify
Atlanta-based private equity firm Roark Capital, known for owning popular restaurant brands such as Arby’s, Baskin Robbins, Buffalo Wild Wings, Dunkin’, Jimmy John’s, and Sonic, is reportedly nearing a deal to purchase the struggling Subway sandwich-shop chain. According to The Wall Street Journal, which cites people familiar with the matter, Roark has been engaged in a long and heated auction for Subway and has offered $9.6 billion. This news comes after Subway announced back in February that it had retained advisers for a potential sale.
The sale process for Subway has been a long and drawn-out affair, now extending over 7.5 months. In January, The Wall Street Journal had initially reported that Subway was exploring a sale with a valuation exceeding $10 billion. However, concerns over soaring interest rates and an economic slowdown have weighed heavily on Subway’s sales, making debt more expensive and less available for potential buyers.
Subway’s Struggles and Potential Revival
The potential acquisition of Subway by Roark Capital comes at a time when the sandwich-shop chain has faced numerous challenges throughout the last decade. Market research firm Technomic highlighted that Subway’s global sales once reached around $18 billion in 2012. However, in recent years, the chain has experienced a crisis, leading to the closure of hundreds of stores in 2017 and additional closures in 2018 due to lackluster sales.
Furthermore, Subway faced a menu crisis when journalists discovered that the company’s chicken contained as little as 42.8% actual chicken, casting doubts on its quality claims. Another investigation raised concerns over the authenticity of Subway’s tuna. In response, Subway invested $80 million in slicers, enabling franchisees to provide customers with freshly sliced meats for the first time in an attempt to revamp its image and emphasize freshness.
With Subway’s co-founder Fred DeLuca’s passing, John Chidsey became the chain’s first outside CEO in 2019. However, despite these efforts, Subway’s struggles persisted, leaving many investors skeptical about its future prospects.
The Implications for Investors
The potential acquisition of Subway by Roark Capital holds significant implications for investors. With Roark’s extensive experience in the restaurant industry and its successful portfolio of brands like Arby’s and Dunkin’, there is hope that the private equity firm could bring the magic touch needed to revive Subway’s declining fortunes.
Furthermore, a successful acquisition could help Roark expand its already impressive portfolio and leverage its expertise in turning around struggling brands. Investors who recognize Roark’s track record and believe in its ability to revitalize Subway could see potential gains in its investment as the sandwich-shop chain recovers and regains its market share.
Considering Roark Capital’s offer of $9.6 billion for Subway, investors may also want to assess the potential valuation of the chain following the acquisition. If Roark’s investment is successful in rejuvenating Subway’s business, there could be a considerable upside for investors who choose to invest in Roark Capital or its affiliated funds.
All in all, the potential acquisition of Subway by Roark Capital presents an intriguing opportunity for investors. While Subway has experienced significant challenges in recent years, Roark’s involvement could potentially turn the tide and reignite growth for the sandwich-shop chain. Investors should closely monitor developments as this deal progresses and consider the potential investment opportunities that may arise.
