After six months of looking for a buyer, Subway has finally sold itself to private equity firm Roark Capital. It ends the sandwich chain’s nearly six-decade family-owned company existence.
The deal, according to a statement from Subway, “combines Subway’s global presence and brand strength with Roark’s deep expertise in restaurant and franchise business models,” and marks a “major milestone in Subway’s multi-year transformation journey.”
Roark Capital is a shareholder in several major restaurant chains, including Sonic, Arby’s, Auntie Anne’s, Buffalo Wild Wings, and Carvel.
“This transaction reflects Subway’s long-term growth potential, and the substantial value of our brand and our franchisees around the world,” said Subway CEO John Chidsey in a statement. With Roark Capital, “Subway has a bright future. We are committed to continuing to focus on a win-win-win approach for our franchisees, our guests, and our employees.”
The agreement’s terms weren’t made public. The purchase price was “around $9.6 billion,” according to the Wall Street Journal, which is a little less than the chain’s $10 billion asking price. The completion of the transaction is “subject to regulatory approvals and customary closing conditions,” according to Subway.
In February, Subway placed itself up for sale. Just shy of Inspire Brands’ $11.3 billion acquisition of Dunkin’ in October 2020, Roark Capital deal is one of the largest purchases in the history of fast food. Jimmy John’s, a competitor of Subway, is operated by Roark’s company, Inspire.
With a new menu that includes freshly sliced meat, restaurant renovations and a stronger focus on foreign expansion, Subway has recently turned things around. The company reported positive sales at stores open for at least a year for the tenth consecutive quarter in July, including a 9.5% gain at its North American sites (it did not provide precise figures).
Despite the improvement in sales, Technomic reports that there were 20,576 fewer Subway locations in the US last year. When compared to its peak of 27,219 locations in 2015, that is a significant drop.
Another problem for Roark Capital is that annual sales at Subway US locations remain significantly lower than those of its sandwich-making competitors. According to data from QSR Magazine, its three main rivals (Jersey Mike’s, Firehouse Subs, and Jimmy John’s) earn roughly $1 million per store, compared to less than $500,000 at an average Subway shop.
However, US revenue has increased recently and is expected to reach $9.8 billion in 2022, up 4% from the previous year but still far behind its 2015 peak of $11.5 billion.
Neil Saunders, managing director of GlobalData, stated in a note that “Roark has inherited a solid and sizable business in Subway but needs to make changes to improve both sales and profitability.” This entails improving productivity by attempting to reduce the number of franchisees, exploring strategies to raise its share of meal occasions in a highly competitive industry, and engaging customers more through menu innovations.
Given Roark’s “extensive experience and investments in the foodservice sector and its record of nurturing restaurant brands and helping them to grow,” Saunders continued, “it clearly sees an opportunity to apply the same playbook to Subway.”
Subway said earlier this month that Trevor Haynes, president of the company’s North American operations, will be leaving after 18 years of service. Next month, Douglas Fry, who is now in charge of Subway Canada operations, will take his place.