- Sandwich chain Subway to sell itself for $9.55 bln to Roark Capital

Subway has agreed to sell itself to private equity firm Roark Capital for $9.55 billion, with certain conditions attached to the windfall received by the families that own the company. This deal, known as an earn-out, defers payment on a portion of the consideration until Subway’s cash flow reaches specific milestones after the deal closes. The total value of the deal, excluding the earn-out target, is $8.95 billion. Roark Capital emerged as the winner in a competitive auction process, beating out a rival bidding group led by TDR Capital and Sycamore Partners. The inclusion of the earn-out helped bridge the gap in valuation expectations between Roark Capital and the DeLuca and Buck families. Subway, which operates thousands of restaurants worldwide, has not disclosed the specific terms of the deal. Once completed, the acquisition will make Roark Capital one of the largest restaurant operators globally, as it already controls Inspire Brands, the owner of various restaurant chains. Industry experts believe that Roark’s experience in helping restaurant brands grow will be beneficial, particularly in the U.S. market where Subway’s performance has declined in recent years. Subway had announced its intention to explore a possible sale earlier this year, attracting interest from several private equity firms. Initially, Subway hoped to fetch over $10 billion due to its strong brand and international presence, but buyout firms argued that its U.S. business was saturated and valued it lower. However, Subway’s efforts to revamp its menu and increase marketing spend have paid off, with same-store sales in North America rising by 9.3% in the first half of 2023. The deal between Roark Capital and Subway has a 12-month timeline for completion and includes a 4% breakup fee to account for potential antitrust regulatory hurdles.