Subway Sale Tests LBO Market

A Subway sale would be the biggest restaurant M&A deal since Inspire Brands bought Dunkin’ for $11.3 billion in 2020.

Subway, one of the largest fast-food chains, is reportedly for sale at a price of $10 billion or more.

It is suggested that the Connecticut-based franchise, which boasts more than 37,000 restaurants in over 100 countries, could attract large corporate buyers or private equity firms. Restaurant Brands International, the Toronto-based parent company of Burger King, Tim Hortons and Popeyes, had been included in early speculation.

California-based FAT Brands, a global franchise company, is another ambitious corporate buyer that acquires and turns around fast-food chains.

A Subway sale would be the biggest restaurant M&A deal since Inspire Brands bought Dunkin’ for $11.3 billion in 2020. Since then, the financing landscape has changed due to rising interest rates and a slowing economy, which has tightened lending.

Leveraged buyouts are far more costly to pull off these days, which may prove to be a sticking point for interested private equity players.

“Private equity buyers care about franchisee sentiment. If franchisees aren’t satisfied, they won’t add expansion units and will not validate well,” Alicia Miller, co-founder and director of boutique strategic advisory firm Catalyst Insight Group, explains. “So private equity is always keeping a pulse on this as part of their decision about whether to invest in a company. The Subway sale may represent the largest experiment we’ve seen within franchising about what actual power franchisees have, or don’t have, in an M&A transaction involving their system.”

Founded 58 years ago, the home of foot-long sandwiches stayed in its two founding families’ hands for over five decades.

John Chidsey has been CEO since 2019.

The company has also suffered from a series of scandals, including the pedophilia conviction of former longtime spokesman Jared Fogle, who is now in prison; and a lawsuit alleging that Subway’s “100% tuna” is fake—an allegation the company has denied.

Subway did not respond to Global Finance’s request for comment.