One of the world’s most beloved food chains has reportedly agreed to sell itself. The Wall Street Journal reports that Subway has agreed to be acquired by Roark Capital. This private equity firm also owns other popular restaurant brands, including Cinnabon, Sonic, and Baskin-Robbins. The deal would value the sandwich chain at more than $9 billion. According to the Journal, the agreement could be finalized this week.
The company, which boasts 37,000 franchise-run locations in more than 100 countries, first announced it was exploring a sale in February and hired JPMorgan Chase to advise on the process. However, the auction has been bogged down by lackluster interest from potential buyers, forcing the company to push back bidding deadlines.
Sources familiar with the matter say that Roark is closing in on a deal for around $10 billion, a bit below the company’s initial expectations. But it’s still considered a massive deal for the fast-food industry and a big win for Atlanta-based Roark, which has built up its expertise in the prepared foods sector after acquiring and building up brands like Buffalo Wild Wings, Arby’s, and Orange Theory gyms.
While the deal will make Roark one of the biggest restaurant operators in the world, it will come with a fair share of baggage. The company has been criticized for forcing smaller franchisees to pay for costly renovations and making it harder to close money-losing stores. The chain also faces allegations of mistreatment of its employees and shoddy restaurant conditions, which is why the new owners will have their work cut out to fix those issues.
In 2023, the company began aggressively shifting away from one- and two-unit franchisees in an attempt to move more of its locations into the hands of more prominent multi-unit owners, and in doing so, some smaller franchisees have complained about their treatment by the parent company. They’ve also been hit with changes to the rules that govern royalties and have had their franchises threatened if they didn’t meet requirements for remodeling their restaurants.
Several private equity firms expressed interest in acquiring the company when it started exploring a sale. However, the high cost of debt for leveraged buyouts has made it tough to secure financing to reach Subway’s ambitious price tag. The company has now pushed back the bid deadline to next month to attract more suitors. It’s unclear whether any of the new potential bidders will be able to match the $9 billion price tag that Roark has set for its offer. The firm will likely need a partner or co-investor to finance the purchase. Subway has also been working to reduce its operating costs and improve efficiency. Those efforts are expected to result in a higher profit margin for the company. However, it will take time to see if the higher profit will offset the cost of the company’s debt payments.