Subway Sandwich Swallowed Whole

Privately-owned Subway, the franchisor for the QSR (quick-service restaurant) chain bearing its name, is close to a buyout by Roark Capital, a restaurant-focused private equity (PE) firm. Roark has been competing with other US buyout firms like Sycamore Partners and TDR (considering a joint bid), TPG and Bain but seems close to winning with a bid of about $9.6bn, according to the WSJ. Valuations aren't disclosed, but a comparable listed company might be $22bn Restaurant Brands International (clue is in the ticker, which actually is “QSR”), founded in 2014 through the merger of Burger King and Canada's Tim Hortons, and includes Popeye's and Firehouse Subs (a fast-growing Subway competitor) with over 28,000 restaurants in more than 100 countries. Another comp is $36bn Pepsi spinoff Yum! Brands, with 55,000 restaurants across 155 countries selling KFC, Taco Bell and Pizza Hut, all global leaders in their categories, most of which operate as franchises. They trade at 21x and 26x historical earnings. Category leader $200bn McDonald's also trades at 26x, with 40k outlets in 118 countries.

..... ▷ Through its Inspire Brands unit, Atlanta-based Roark also owns roast beef QSR Arby’s (2011, $430mn) and casual diner Buffalo Wild Wings (2017, $2.9bn) plus stakes in burger chains Hardee’s and Carl’s Jr. In pandemic-ridden 2020, it swooped on Dunkin’ Brands, the Nasdaq-listed owner of the Dunkin’ Donuts and Baskin Robbins chains, in an all-cash deal worth $11.3bn, including debt. It was priced at $106.50 a share, about 20% above the “undisturbed” share price (meaning before word leaked out of the deal.)

..... ▷ Founded in 1965 as "Pete's Super Submarines" in Connecticut by 17-year-old Fred DeLuca and his friend Peter Buck, Subway has been owned by their families ever since and now has 37,000 restaurants running in over 100 countries. But the sale of Subway, proposed in January, has been complicated by its decline in the US, marked by 6,000 restaurant closures since 2015, including 500+ in 2022 (the year it was roasted on HBO), along with net closures of international locations as well. The result was ceding Subway’s status since 2011 as the world’s largest restaurant chain (by unit count) back to McDonald’s.