What is Roark Capital, and how did it come to dominate the global restaurant industry?

• That was the gist of a conversation I had on CNBC last week, after the Atlanta-based private equity firm agreed to buy Subway for $9.6 billion.
• It's also the subject of a helpful new piece from my Axios colleague Richard Collings, who notes that Roark was named for the protagonist in Ayn Rand's "The Fountainhead."
• But I had a wonkier question, more appropriate for Pro Rata readers: How does Roark have such strong distributions and returns, given that it avoids exits like a foodie avoids ... well, Subway.

The big picture: Roark takes the idea of patient capital very, very seriously. For example, it still owns its first-ever portfolio company — ice cream chain Carvel, which it bought for $30 million in 2001.

• It also maintains major holdings from both its second and third funds, raised in 2009 and 2012, respectively.
• Fund III, however, has already distributed more than the paid-in capital, according to a public pension fund report. Moreover, its remaining value is nearly 2x the inflows.

Behind the scenes: Roark's early investments, including Carvel, were done as pledge funds with much of the capital coming from high-net-worth individuals.

• That gave the firm a bit more wiggle room than it might have in a typical fund structure, and it's said to have included long lifecycles in at least some of its more formal pools. But it still doesn't explain how Roark's LPs are already in the black.
• The LP explanation there is financial engineering, although not as a pejorative.
• For starters, Roark likes to buy companies that throw off strong cashflow via royalties and other asset-light revenue streams. That's why it focuses so much on franchise businesses like restaurants, and the cashflow enables Roark to regularly recapitalize its companies, paying out large dividends to limited partners.
• Those sorts of businesses also attract significant co-investment. Subway, for example, is going to require nearly as much equity as Roark raised for its entire sixth fund in 2021 (which was 30% called through Q1).
• It also did a large GP-led secondary a couple years back, allowing some LPs to cash out, and invests across funds (e.g., Inspire Brands, owner of Arby's and Dunkin, which is held in multiple Roark vehicles).

Look ahead: If there was ever a time for Roark to lose its patience, it would be now. Rates are rising, thus making dividend recaps less appealing, and the IPO market is finally open.

• Whether Roark will finally hit the exits, however, is the multibillion-dollar question.

Source: Giphy

E.L.F. Beauty (NYSE: ELF) agreed to buy skin care brand Naturium for $355 million in cash and stock.

Why it's the BFD: This is the Oakland-based cosmetics company's largest acquisition in its 19-year history, and reflects soaring retail demand for new skin care products.

• Expect the visibility of Naturium products to be elevated by existing E.L.F. distribution partners like Amazon and Target.

Details: The deal includes $70 million in stock, and the purchase price implies multiples of around 4x net sales and 21x adjusted EBITDA. Sellers include Prelude Growth Partners.

The bottom line: "Most of E.L.F.'s skin products are priced at $9, whereas Naturium's products are 'masstige' — or prestige for the masses — and priced at $18." — Kimberly Chin, Axios Pro

• Mediafly, a Chicago-based revenue enablement startup, raised $80m. BIP Ventures led, and was joined by Boathouse Capital. https://axios.link/44uGr75

• Hyperproof, a Bellevue, Wash.-based risk and compliance management SaaS, raised $40m. Riverwood Capital led, and was joined by Toba Capital. https://axios.link/45MDjog

• Gitai, a Japanese developer of robots for in-space satellite servicing work, raised $15m from Green Co-Invest Investment, Pacific Bays Capital and MSIVC. https://axios.link/45RxrdB

• Voxel, an SF-based computer vision startup focused on workplace safety, raised $12m. Rite-Hite led, and was joined by insiders Eclipse Ventures and World Innovation Lab. www.voxelai.com

Fidelity marked up the value of its Twitter stake by 8% during the month of July, but continues to hold it at a 58% discount, according to a new disclosure.

• Altafiber (fka Cincinnati Bel) raised $600m in new equity funding from existing backers like Ares Management and Macquarie Asset Management. https://axios.link/3L24TGm

🚑 Archimed agreed to buy health care IT firm Instem (LSE: INS) for £203m. https://axios.link/45uZbF4

• BradyIFS, a Las Vegas-based portfolio company of Kelso & Co. and Warburg Pincus, agreed to pay $1.7b for a 63% stake in Envoy Solutions, a provider of janitorial, sanitation and foodservice products, from Mexico's Femsa. https://axios.link/3qUz3EA

• JPMorgan Chase (NYSE: JPM) increased its stake in Brazilian digital bank C6to 46% from 40%. https://axios.link/3qQAyDy

• Marlin Equity Partners acquired ShipServ, a London-based maritime software procurement platform that will be merged with existing Marlin portfolio company Marcura. www.shipserv.com

• RedBird IMI, led by ex-CNN boss Jeff Zucker, is in talks to invest in sports media company Front Office Sports, per Axios. https://axios.link/3svBqy6

• Shoreline Equity Partners invested in American Landscaping Partners, a Nashville-based provider of landscaping and chemical application services. www.americanlandscapingpartners.com

• Zasilkovna, a Czech parcel delivery firm, reportedly shortlisted Advent International, PPF and Daniel Křetínský for a takeover that could fetch more than €300m. https://axios.link/47LA9Tw

• Zhaogang, a Chinese steel-trading website that's raised over $360m in VC funding, is nearing a merger agreement with Aquila Acquisition Corp., a Hong Kong-listed SPAC backed by China Merchant Bank, per Bloomberg. https://axios.link/3PlgK4U

• JC Flowers is in talks to sell Romania's First Bank to Intesa Sanpaolo (Milan: ISP) for around $200m, per Bloomberg. https://axios.link/3OZjkf8

• Orora (ASX: ORA), an Australian packaging company, is in advanced talks to buy French glass bottle maker Saverglass from Carlyle, which last tried to sell the business in 2021. https://axios.link/47QyLiz

• Trustar Capital agreed to sell Moritex, a Japanese provider of optics components, to Cognex (Nasdaq: CGNX) for around $275m. https://axios.link/45PW0Yk

• Lufthansa, the listed German airline, is seeking to sell insurance units Albatros and Delvag, per Bloomberg. https://axios.link/3qUuI4b

• Marfrig Global Foods of Brazil agreed to sell a portfolio of cattle and lamb processing facilities to rival Minerva for $1.5b. https://axios.link/44uFYll

🚑 Novo Nordisk (CSE: NOVO) agreed to buy Embark Biotech, a Danish weight-loss biotech, for €15m. This comes just weeks after Novo, the maker of weight-loss drugs Ozempic and Wegovy, agreed to buy obesity-focused Inversago for up to $1.1b.

• Panoramic, a British private equity and debt firm focused on SMEs, raised £100m for its third fund. www.pgequity.com

• Eytan Tigay is stepping down as chief investment officer of Rhone Capital, per Bloomberg. https://axios.link/3PiIsPt

Brian Dovey, a longtime health care venture capitalist, died on Sunday at the age of 82 after a brief illness.

• Brian in 1998 became a partner with Domain Associates, which was one of the most active VC firms in the health care sector. He'd lead investments in more than 200 pharma and life sciences companies, and also would chair both the National Venture Capital Association and the Kauffman Fellows Program.
• He is survived by Betty, his former high school girlfriend and wife of 60 years. Plus siblings, children and grandchildren.

On a personal note, Brian was one of the VCs I spoke with most in my early days covering the industry. Always gracious with his time and patience, whether the arcane subject was financial or medical. Rest in peace, Brian.

Rite Aid, the Philadelphia-based pharmacy giant with more than $24 billion in annual revenue, has become a penny stock.

• This comes after a WSJ report that the company is preparing to file for Chapter 11 bankruptcy, in a move that could help it protect against a myriad of opioid-related lawsuits.