Roark acquires Subway for $9.6 Bn; Is the Move Good or Bad?

Roark Capital Group is an American Private Equity firm headquartered in Atlanta, Georgia, USA which invests principally in franchise/multi-location restaurants and food, health and wellness, and business services, etc. The company focuses on leveraged buyouts. Their famed ownings are chain restaurants like Arby’s, Dunkin’, Buffalo Wild Wings, Auntie Anne’s, Baskin-Robbins, Carvel and Sonic, etc. Now they have caught a big fish enfeebling in multiple countries – Subway. After selling itself to Roark, they said the deal was a “major milestone in Subway’s multi-year transformation journey, combining Subway’s global presence and brand strength with Roark’s deep expertise in restaurant and franchise business models.”

Terms of the transaction remain undisclosed. However, the purchase price was reported to be $9.6 billion by Wall Street Journal which was below their asking price of $10 billion when Subway set itself for sale in February. Albeit other bidders, had quote much lower. CEO Subway, John Chidsey said the deal’s terms of closure are “subject to regulatory approvals and customary closing conditions.”

“This transaction reflects Subway’s long-term growth potential, and the substantial value of our brand and our franchisees around the world,” CEO Chidsey said in a statement. “Subway has a bright future with Roark, and we are committed to continuing to focus on a win-win-win approach for our franchisees, our guests, and our employees.”

While Subway did focus on international expansion and refurbished their menus by offering fresh cold cuts in North America thereby witnessing a growth in sales there from chains only a year old, the case wasn’t so in India. This is because despite hiring Vishy Anand as their ambassador and several ads and airport outlets –Subway food has done little to satiate the Indian tastebuds due to too much focus on expansion, has seen little innovation and an old but not rustic aesthetic store design and despite a technical spearhead it hasn’t quite kept up with the sandwich business competitors.

Roark has a challenge at hand as many American competitors

Overall, the sale has been beneficial for Subway as it reached its saturation point at least in the Indian markets where McDonald’s, Burger King, and KFC have performed way better (though KFC may also be close to its inevitable dwindling). It also has been sold to the same private equity firm which owns its close competitor Inspire’s food outlets. However, Roark has a challenge at hand as many American competitors accrue about $1 million per unit whereas a Subway outlet only makes $500,000 on a good day.

The acquisition of Subway is Roark’s largest deal to date. The firm is betting that it can turn around Subway’s fortunes by investing in marketing, technology, and restaurant design.

Roark Capital Partners has acquired Subway for $9.6 billion in an all-cash deal. The acquisition, which is expected to close in the first half of 2023, will make Roark the owner of one of the world’s largest restaurant chains.

Roark is a private equity firm that specializes in acquiring and investing in consumer-oriented businesses. The firm has a portfolio of over 40 brands, including Arby’s, Jimmy John’s, and Buffalo Wild Wings.

Subway has been struggling in recent years. The chain has lost market share to competitors like McDonald’s and Starbucks. Subway has also been criticized for its food quality and its use of artificial ingredients.

Suggestion lent by Neil Saunders, Managing Director, GlobalData wrote, “Roark has inherited a solid and sizeable business in Subway but needs to make changes to improve both sales and profitability.”

“This includes enhancing efficiency by trying to consolidate the number of franchisees, looking at ways to increase its share of meal occasions in a very competitive market, and engaging consumers more with menu innovations.”

Please, also have a look into : Reliance Retail likely to acquire Subway Inc India for Rs 1,860 crore to take on Domino’s, McDonald’s