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Why Roark makes the most logical buyer of Subway

Illustration: Tiffany Herring/Axios

While Subway's founding family hasn't yet picked a buyer, leading bidder Roark Capital's extensive restaurant portfolio could make the PE firm the most viable acquirer.

Why it matters: An acquisition of the sandwich chain would solidify Roark's position as one of the largest restaurant owners in the world.

  • It already controls fast-food chains Dunkin', Arby's, Sonic Drive-In, Baskin-Robbins, Jimmy John's and Buffalo Wild Wings.

Driving the news: The Wall Street Journal reported Monday that Roark was poised to acquire Subway for $9.6 billion.

Yes, but: The JPMorgan-led sale process is still down to two bidders, Axios confirmed Monday — Roark on one side and TDR Capital and Sycamore Partners on the other.

  • Bloomberg reported Tuesday that TDR and Sycamore brought in Goldman Sachs Group's asset management arm and an unnamed sovereign wealth fund, in a last-ditch effort to win the auction.

Between the lines: Although a PE firm, Roark can behave like a strategic acquirer given its holdings, giving it an advantage over the rival group.

  • The sponsor could elect to merge Subway with its restaurant holding company Inspire Brands — as it did with Dunkin' — or at least, share resources between the two and realize synergies.
  • That potential for an increase in cash flow could support more debt and a higher valuation, as well as boost returns.
  • Roark's track record also makes it a more attractive borrower.

Catch up fast: An acquisition of Subway would be the latest in a series of Roark deals that have transformed the fast-food industry over the last decade.

  • Inspire Brands is a holding company formerly known as Arby's Restaurant Group.
  • That company inked a $2.9 billion deal to acquire Buffalo Wild Wings in 2017 and bought Sonic for $2.3 billion a year later.
  • It added Jimmy John's to its growing portfolio in 2019 for an undisclosed amount, though the chain was reported to have $2.1 billion in sales at the time.
  • The acquisition of Dunkin' and Baskin-Robbins in 2020 for $11.3 billion more than doubled Inspire's systemwide sales at that time.

Zoom in: An acquisition of Subway could mirror that of Dunkin'.

  • When Inspire acquired Dunkin', the coffee chain was weathering the pandemic under former McDonald's executive David Hoffman, who was focused on improving franchisee profitability.
  • Under CEO John Chidsey, who previously helmed Burger King, Subway has been in turnaround mode, consolidating franchisees into larger operating groups, Axios previously reported.
  • Subway's franchise model, which eschews owning locations in exchange for an asset-light model that prizes royalties over operating revenue, is in line with Roark's past investments.

Be smart: Unlike Dunkin', which still has U.S. regions where it has no stores, Subway has fully saturated the market.

By the numbers: Subway had nearly $17.5 billion in global systemwide sales in 2022, per Franchise Times.

  • Roark's Inspire had about $31 billion in global systemwide sales last year, according to its website.

The bottom line: Acquiring Subway would put Roark's holdings ahead of Burger King-parent Restaurant Brands International and Starbucks — but behind McDonald's and KFC-parent Yum Brands.

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