Aug 26, 2023 2 min read

Roark Capital and Subway Agree to Mega Deal

Subway has gone through a true transition over the past few years, ultimately resulting in this acquisition.
Roark Capital and Subway Agree to Mega Deal

This past Thursday, one of the largest restaurant acquisition announcements of recent memory took place. Roark Capital and Subway agreed to a deal for a reported $9.6 billion in which the private equity group will take ownership over the behemoth sandwich company. Subway, which has been family-owned for almost six decades, believes this is the right time to cash in on their tremendous growth since their inception in Bridgeport, CT in 1965.

Subway, once the largest restaurant group in the world in terms of units, is still the largest sandwich chain in the U.S. and the eighth biggest American fast-food chain with $9.8 billion in sales last year. While younger consumers might believe Jersey Mikes, the increasingly popular competitor to Subway, has gained traction, Jersey Mike’s 2022 sales were still only a quarter of that of Subway's.

Subway has gone through a true transition over the past few years, ultimately resulting in this acquisition. Chief Executive John Chidsey, who took over in 2019 as the only CEO outside of the founding family, has worked to turn the business around. In 2020, Subway closed more than 1,600 locations, focusing on closing the lowest-earning locations, restructuring operations, and increasing food quality. Subway says it has “generated 10 straight quarters of positive same-store sales growth in the U.S., as its average unit volumes reached their highest level in a decade.”

Chidsey thinks that the acquisition will take Subway to the next level as Roark Capital has become the preeminent expert in the space. Chidsey continued to say that “they understand our business. From the family’s perspective, it was a compelling offer that I think works for everybody.” Chidsey plans to stay on as senior management with the group throughout the transition and into the future. Subway currently has “15 deals with international franchisees and aims to open around 9,000 restaurants through the agreements. One franchisee is on board to open nearly 4,000 locations in China over the next 20 years.” Following the acquisition, Chidsey believes Subway can grow to about 60,00 locations (from 37,000 today), with the majority of the growth projected to come from abroad.

For context, Roark has become one of the largest private equity investors in the U.S. restaurant chains with extensive experience in franchising, international development and expansion, and digital ordering. In 2020, Inspire Brands, which is financially backed by Roark, bought Dunkin’ Brands Group for $11.3 billion. Inspire Brands also owns Arby’s, Buffalo Wild Wings, Sonic Drive-In, and Jimmy John’s, with more than 32,000 locations. Roark also owns, through Focus Brands, Auntie Anne’s, Carvel, Cinnabon, Jamba Juice, and Moe’s Southwest Grill, some of the most recognizable restaurant brands around the country.

Following this monstrous deal, I believe it might have implications for the future of restaurant consolidation in the United States. Despite predictions that M&A activity would be slow in 2023, it has really been anything but. Earlier in the year, Darden (Olive Garden, Longhorn Steakhouse) bought Ruth Chris for $715 million. In March, Main Squeeze Juice bought competitor I Love Juice Bar, doubling its store count overnight. Lastly, both Fiesta Restaurant Group and Firebirds Wood Fired Grill were acquired by private equity firms.

Roark, who has truly become the dominant player in the space, now owns so many different leading players in every corner of the hospitality and foodservice service. It will be fascinating to see, with as much consumer reach as they currently hold, how the various brands choose to (or not to) interact with each other moving forward. As Winston Churchill once stated, with great power comes great responsibility. And everyone will be watching Roark to see what happens next.

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