Sources: Subway sandwich chain sells itself for $9.55 billion to Roarke Capital

Aug. 24 – Subway will sell itself to private equity firm Roarke Capital for $9.55 billion after agreeing to tie conditions to some windfall for the two families who own it, ending a long-running auction that has seen several competing bids, sources said.

The sources familiar with the matter said that these terms, known as profits, delay the payment of part of the deal amount.

In order for the price to be paid in full, they said, Subway’s cash flow would need to reach certain milestones within a specified period after the deal closed.

The sources said the value of the deal is $8.95 billion, excluding the profit target.

Rourke overcame a late challenge from a competing bidding group led by TDR Capital and Sycamore Partners, which made a final bid of $8.75 billion, or $8.25 billion excluding dividends, according to people familiar with the matter.

The arrangement helped close the gap in valuation expectations between Roark Capital and the DeLuca and Buck families who own Subway, according to the sources.

Subway, which has nearly 37,000 restaurants in more than 100 countries, did not disclose terms of the deal Thursday.

The deal will make Roark Capital one of the largest restaurant operators in the world. It controls Inspire Brands, which owns restaurant chains including Jimmy John’s, Arby’s, Baskin-Robbins and Buffalo Wild Wings.

“Rourke brings more to the table than other investors might,” said Neil Saunders, managing director of GlobalData.

He said its experience helping restaurant brands grow would be beneficial “especially in the US market where it is still well below its peak a few years ago”.

Subway said in February it was exploring a potential sale, drawing interest from private equity firms including Roarke, Advent International, TDR Capital and TBG, as well as the asset management arm of Goldman Sachs.

The restaurant chain was then hoping to bring in more than $10 billion, due to its strong brand and international business. But the acquirers countered that they were worth less because they considered their US business saturated.

Owned by the founding families since opening its first outlet in 1965, Subway has struggled for several years with competition from competitors until it revamped its menu and increased marketing spend in 2021.

Those efforts appear to be paying off as North American Subway store sales rose 9.3% in the first half of 2023.

Sources said Roark and Subway have 12 months to complete the deal, which includes a 4% breakup fee. The fee covers the possibility of antitrust regulators thwarting the deal.

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