September 27, 2023

Brighton Journal

Complete News World

Roark Capital buys Subway restaurant chain for up to $9.55 billion

Roark Capital buys Subway restaurant chain for up to $9.55 billion

NEW YORK (Reuters) – Private equity firm Roarke Capital on Thursday agreed to buy Subway, in a deal people familiar with the matter said would value the U.S. sandwich chain at up to $9.55 billion, including debt, subject to policy objectives. Financial performance.

The deal marks the conclusion of a long auction that began in February and attracted interest from several private equity firms. Reuters reported on Tuesday the so-called earnings agreement that was key to Rourke’s deal for Subway.

For the deal price to be paid in full, Subway’s cash flow will need to reach certain milestones over a period of two years or more after the deal closes, according to the sources. The sources said that without the gains, the value of the deal is $8.95 billion.

Profit structures, while uncommon in the consumer and retail sectors, are increasingly occurring in a challenging market for mergers and acquisitions as a means of reconciling spreads.

Sources said the arrangement helped bridge the gap in valuation expectations between the Roark, DeLuca and Buck families that own Subway, which began nearly 60 years ago in Connecticut.

The families had hoped to bring in more than $10 billion for Subway based on its strong brand and international growth, but the private equity firms countered that it was worth less because they deemed their US business saturated.

The sources said Roarke outperformed a rival group led by acquisitions firms TDR Capital and Sycamore Partners, whose final bid was $8.75 billion including dividends and $8.25 billion without.

Rourke, who owns restaurant operators and other franchises including rival sandwich chain Jimmy John’s, will pay the Subway owners a breakup fee equal to 4% of the deal value if antitrust regulators thwart the deal, one of the sources said.

See also  Subway was sold to Roark Capital, a private equity firm and owner of Dunkin'

Contacting the deal allows 12 months to complete the deal, according to the sources.

The sources added that Rourke saw the restaurant market as too fragmented for the deal to raise concerns about competition.

Jimmy John’s has more than 2,600 restaurants in 43 US states. Subway has more than 37,000 restaurants in more than 100 countries.

Roark and Subway, which announced the deal on Thursday, declined to comment on the terms.

Rourke currently controls Inspire Brands, which owns restaurant chains including Jimmy John’s, Arby’s, Baskin-Robbins and Buffalo Wild Wings.

Neil Saunders, managing director of market research firm GlobalData, said its experience helping restaurant brands grow would be beneficial “especially in the US market where it is still well below its peak a few years ago”.

Operations renewal

Tax considerations were part of the calculus for selling the Underground. This is because estate co-founder Peter Buck, who died in 2021, donated his 50% stake in the privately owned company to his charity under the terms of his will. This provides a tax shield on the sale of the stake.

Founded in 1965 by 17-year-old Fred DeLuca and his family friend Buck, Subway has been family owned since opening its first restaurant, “Pete’s Super Submarines” in Bridgeport, Connecticut.

The Milford, Connecticut-based company is revamping its operations to deal with outdated decor and $5 deals on foot-long sandwiches that have eroded franchisees’ profits. In 2021, the chain launched a menu overhaul and slick marketing campaign as it embarked on a turnaround plan that helped grow sales.

Subway, which has closed thousands of US locations since 2016, said a year ago it wanted to shift away from its current base of small franchisees with one or two stores, which tend to be family-run and sometimes barely make ends meet.

See also  Kramer's Telegram Tour: Stay away from VinFast

The company saw a 9.85% increase in same-store sales in the first half of 2023. Its 12-month EBITDA amounted to about $800 million, according to the sources.

JPMorgan Chase and the law firm Sullivan & Cromwell LLP advised Subway. Paul, Weiss, Rifkind, Wharton & Garrison LLP advised Roark Capital, and Morgan Stanley led the acquisition financing.

(Reporting by Anirban Sen and Abigail Somerville in New York and Deborah Sophia in Bengaluru) Editing by Greg Romeliotis and Margarita Choi

Our standards: Principles of Trust for Thomson Reuters.

Obtain licensing rightsopens a new tab

Abigail is a member of the Mergers and Acquisitions team and writes about consumer and retail deals. She joined Reuters in 2022 from Debtwire where she covered leveraged financing and the primary debt market for three years. Her work has previously appeared in The Wall Street Journal, CNBC, and The Boston Business Journal. She majored in business journalism at Washington and Lee University. Contact: 332-261-5948

Anirban Sen is the US mergers and acquisitions editor at Reuters in New York, where he leads coverage of the biggest deals. After starting with Reuters in Bangalore in 2009, he left Anirban in 2013 to work as a technology deal reporter for several of India’s leading business news outlets, including The Economic Times and Mint. Anirban returned to Reuters in 2019 as Chief Financial Editor to lead a team of reporters covering everything from investment banking to venture capital. Anirban holds a degree in history from the University of Jadavpur and a postgraduate diploma in journalism from the Indian Institute of Journalism and New Media. Contact: +1 (646) 705 9409

See also  Twitter threatens legal action over the Topics app