Aug 30, 2023 - Economy

Behind the curtain of Subway's new owner, Roark Capital

Illustration of a pair of binoculars with a sandwich reflected in the lenses.

Illustration: Gabriella Turrisi/Axios

Roark Capital is about to become one of the world's largest restaurant owners, adding Subway to a portfolio that already includes chains like Arby's, Dunkin and Buffalo Wild Wings. But what exactly is Roark Capital?

The big picture: Roark — named after the protagonist in Ayn Rand's "The Fountainhead" — is an Atlanta-based private equity firm founded in 2001 by Neal Aronson after he sold a hotel franchisor to the Pritzker family for $100 million.

  • Today it has $37 billion in assets under management, and specializes in "asset light" turnaround situations that rely heavily on franchise royalties.
  • That was evident in Roark's first acquisition, a majority stake in troubled ice cream chain Carvel in 2001 for $30 million, and subsequent deals like Arby's and Subway.

The big picture: The firm's restaurant portfolio is massive.

  • Among its other eatery holdings are Jimmy John's, Sonic, Auntie Anne's, Carvel, Cinnabon, Jamba Juice, McAlister's Deli, Moe's Southwest Grill, and Schlotzsky's, Nothing Bundt Cakes, Miller's Ale House, Culver's and Jim 'N Nick's BBQ.
  • It also controls CKE Restaurants, which owns burger chains Hardee's and Carl's Jr., and retains a small stake in The Cheesecake Factory, which includes the North Italia and Flower Child chains.
  • Its franchise focus extends to other industries, including automotive (e.g., Meineke), fitness (Orangetheory) and home services (Merry Maids).

Why it matters: With Roark in control of a broad swath of an industry, the Subway acquisition is certain to get at least a cursory glance from antitrust regulators.

  • One question is if Roark will have too much power over vendors who service restaurants, says Brian Albrecht, chief economist at the International Center for Law & Economics.
  • Traditionally, neither the FTC nor DOJ have gone after private equity firms. There was speculation that Thoma Bravo's recent buyout of ForgeRock would be blocked, but it wasn't.

Yes, but: Regulators recently issued new draft merger guidelines that may have implications for private equity roll-up strategies.

The intrigue: Roark, which declined comment for this article, has long holding periods and has only exited a handful of businesses. For example, it still owns Carvel.

  • It did take Meineke's parent company (Driven Brands) public in 2021, but still holds a 60% stake.

The bottom line: Roark's restaurants likely generate more than $62 billion in global systemwide sales with the addition of Subway.

Editor's note: Cox Enterprises, the owner of Axios, has invested in some Roark funds.

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