Private equity firm Roark Capital has reached an agreement to acquire Subway, the US-based sandwich chain, in a deal valued at approximately $9.6bn including debt. This acquisition marks Roark’s entry into the food industry and follows its previous purchase of Dunkin’ Brands Group. Subway, which operates 37,000 stores worldwide, has faced challenges in recent years, struggling to compete with newer rivals and changing consumer preferences for more natural ingredients. The deal includes $5bn in debt financing, and Roark has included an “earn-out” clause to mitigate risk and may explore lower funding costs through whole business securitisation.
Roark Capital’s purchase of Subway represents a significant move into the food industry for the private equity firm, which already controls Inspire Brands and acquired Dunkin’ Brands Group in 2020. However, the acquisition comes at a time of rising interest rates and inflation-wary consumers, posing potential challenges for the fast-food chain. Subway has experienced a decline in global sales since 2012, struggling to compete with newer competitors like Panera Bread and Chipotle Mexican Grill, as younger consumers increasingly prefer natural ingredients. The $9.6bn deal includes $5bn in debt financing, which, coupled with potential future interest rate increases, could strain Subway’s financials. To mitigate risk, Roark has included an “earn-out” clause, with part of the payment dependent on meeting certain earnings targets over time. Additionally, the private equity firm may seek lower funding costs through whole business securitisation, leveraging the royalties paid by franchisees as collateral for borrowing.
While Roark’s acquisition illustrates its confidence in Subway’s potential, the rising costs of eating out present a challenge to the food industry. This deal underscores the increasing expenses faced by consumers, and the impact on businesses in the sector. With the purchase of Subway, Roark Capital aims to navigate these challenges and capitalize on the brand’s global presence.