From Foot-Longs to Billions: Subway's Sandwich Empire Faces Dramatic Turn with Potential Roark Takeover!

In a whirlwind auction with the business acquisition community talking, Roark Capital is seemingly on the cusp of securing a deal to acquire the world-famous Subway sandwich chain for an impressive $9.6 billion. 

Roark Capital fiercely competed with prominent private-equity firms such as TDR and Sycamore throughout the auction. 

However, recent developments suggest Roark may be leading the race, though a counteroffer from competitors remains a possibility.

Situated in Milford, Connecticut, Subway is best known for its signature foot-long sandwiches. 

Under the stewardship of its two founding families for over half a century, the company initiated the idea of selling earlier this year. By February, experts were brought on board to facilitate the sale process.

Interestingly, Subway ranks as the eighth-largest U.S. restaurant brand. Market research from Technomic indicates that in 2021 alone, Subway raked in domestic sales of $9.8 billion across its 20,810 U.S. locations. Worldwide, the sandwich giant operates approximately 37,000 outlets.

The brand, however, has seen some challenges in the past decade, Wall Street Journal reported. After achieving global sales of $18 billion in 2012, there was a downturn in the following years. 

As stores closed and franchisees stepped back, Subway grappled with growing competition from new entrants in the sandwich market.

Despite a diminishing footprint in the U.S., Subway's vision is global. The company has ambitious plans, targeting opening about 9,000 new restaurants worldwide, including a significant push of nearly 4,000 locations in China over the forthcoming two decades.

Subway gave its U.S. menu a makeover to entice a new generation of customers. In a noteworthy move last July, the company introduced deli slicers in all U.S. branches, signaling the start of offering freshly sliced meats—a move with an $80 million price tag.

The move comes just when JP Morgan initiated coverage on Restaurant Brands International QSR with a price target of $84 and an Overweight rating.

The analysts John Ivankoe, Rahul Krotthapalli, and Saransh Gokhale write that past budgeting constraints might have led to reduced investments, especially compared to active competitors. 

However, there's a noticeable shift in the business, marked by the hiring the highly regarded ex-Dominos CEO, Patrick Doyle, among other key executives. 

Focusing on better unit economics, JP Morgan anticipates improved performance across existing and new stores, boosting confidence in the projected 4-5% unit growth or reaching 40k stores by 2029 from the present 30.1k fueled by the international segments of Burger King, Tim Hortons, and Popeyes, while domestic counts stabilize.

Price Action: QSR shares are up 1.11% at $69.45 on the last check Monday.