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Subway's sale process enters endgame

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Jul 21, 2023
an illustration of a footlong sandwich stuffed with turkey, tomatoes, lettuce, onions and dollar bills

Illustration: Tiffany Herring/Axios

The Subway sale process is entering its final stage with two private equity bidders remaining, a source familiar with the situation says.

Why it matters: Closing one of the largest restaurant deals in recent years in a difficult M&A environment would be a coup for the franchise and its financial adviser JPMorgan.

Details: A transaction for the sandwich chain could be announced in the early weeks of August, the source says, adding that it was delayed because one of the remaining bidders entered late in the process.

  • The winning offer is likely to come in somewhere between $9 billion and $10 billion.
  • The valuation would imply a multiple of over 12x the $750 million in EBITDA (per Pitchbook) it generated last year.

Of note: For comparison, Inspire Brands' $11.3 billion acquisition of Dunkin' in 2020 was 18.9x EBITDA, while Darden's $715 million purchase of Ruth's Hospitality this year for 9.9x EBITDA, per PitchBook.

Catch up fast: Axios reported earlier this week that the process had been delayed into late summer amid a difficult macroeconomic environment.

Be smart: Subway is asking for a seller's price in a current buyer's market, which could throw a wrench into getting the deal over the finish line, one industry source says.

  • The debt conditions for LBOs haven't been this bad since the height of the financial crisis some 15 years ago, the source points out.
  • While the chain is a marquee asset with lots of low-hanging fruit for improving performance, a buyer would still have to invest a lot in a turnaround play, the source says.

The big picture: The good news for Subway is consumers are still spending, the source adds.

Subway declined to comment.

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