End of family ownership looms for sandwich maker Subway after $9bn deal

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Subway, the restaurant chain known for selling foot-long sandwiches, has agreed to sell itself to US private equity group Roark Capital for more than $9bn in one of the year’s largest private equity buyouts.

Roark Capital will pay $9bn up front, according to two people with knowledge of the terms. It has also agreed to make up to $600mn in further potential payments over three years for the family-owned restaurant group.

The Atlanta-based private equity group would finance its takeover with about $4bn in equity and $5bn in debt, the people said. The financing was led by Morgan Stanley, Barclays, JPMorgan and four other banks. Morgan Stanley also advised Roark but declined to comment.

Roark will consider options such as securitising some of Subway’s stores after the takeover closes.

Subway declined to comment on the terms of the deal, which were not disclosed in an announcement confirming the sale. Representatives for Roark did not respond to emails seeking comment. The lenders either declined to comment or did not immediately respond to requests seeking comment.

The takeover underlines the rising appetite among large banks to finance takeovers after 18 months when they largely avoided new lending commitments. Institutions have been deterred after facing billions of dollars in losses on unsold debt commitments made before a sharp rise in interest rates last year.

Private equity firm GTCR’s carve-out of payments business Worldpay from financial technology group FIS last month was regarded as signalling a reopening of lending markets. A consortium of banks led an $8.4bn financing package for the transaction.

The sale will mark the end of more than half a century of family ownership for Connecticut-based Subway. The company was a pioneer of the use of franchised stores to grow quickly with minimal capital costs.

As long ago as 1974, Subway began selling rights to use its brand and marketing efforts to independent entrepreneurs who would own and operate stores in exchange for paying a royalty. The model helped Subway to grow from about 16 sandwich shops to more than 37,000 stores globally.

Other larger restaurant groups such as McDonald’s have increasingly shifted their operations towards the same model.

Over the past decade, Roark has spent more than $10bn to buy restaurant chains including Arby’s, Buffalo Wild Wings and the parent company of Dunkin’ Donuts, among others. The privately held investment group, which is controlled by Neal Aronson, has $37bn in assets under management. It is named after Howard Roark, the protagonist of Ayn Rand’s libertarian novel The Fountainhead, and is known for turnaround efforts that focus on the use of franchises for expansion.

The private equity group also owns Driven Brands, a conglomeration of recognisable auto service brands such as Maaco, Meineke and 1-800 Radiator. In addition, it has invested in gyms, fitness centres and petcare clinics that rely on franchises.

Roark emerged the winner from a process that included several other private equity bids after Subway hired JPMorgan earlier this year to manage a sale process.

The private equity group will be tasked with reviving a brand that many experts say has overexpanded in the US and is being hit by changing consumer habits.

Subway in recent years has closed thousands of stores to manage lower demand stemming from low-carbohydrate diets and the slow post-coronavirus pandemic return of workers to the central business districts where many of its restaurants are located. It has recently earmarked non-US markets as the base of its expansion plans and seen a stabilisation in sales growth.

“The transaction is a major milestone in Subway’s multiyear transformation journey, combining Subway’s global presence and brand strength with Roark’s deep expertise in restaurant and franchise business models,” Subway said in a press release.