Subway’s Acquisition Bodes Well for Retail Owners
Subway will be better capitalized to modernize stores, which will result in higher sales and their ability to pay higher rents.
In a major milestone in Subway’s multi-year transformation, Subway last week announced that it has entered into a definitive agreement to be acquired by affiliates of Roark Capital.
The transaction combines Subway’s global presence and brand strength with Roark’s expertise in restaurant and franchise business models, according to a release.
Terms of the deal weren’t disclosed. The sale ends the nearly six-decade run as a family-owned business. The Wall Street Journal reported the purchase price was “around $9.6 billion,” which would be slightly below the chain’s $10 billion asking price.
The chain has nearly 37,000 restaurants spread over more than 100 countries. Subway recently announced its 10th consecutive quarter of positive same-store sales.
Robert Holuba, Managing Director for CenterSquare’s Essential Service Retail (ESR) Strategy, tells GlobeSt.com that “overall, this is a great thing for the Subway brand. Roark Capital is a premier restaurant investor who understands the industry and can help it grow by store count and digital presence.
“It will be better for shopping center owners because Subway will be better capitalized to modernize stores and improve their digital presence, which will result in higher sales at their stores and their ability to pay higher rents.”
Holuba said that over the past several years, Subway has been slow to respond to competition, namely Jersey Mike’s, and hasn’t been reinvesting in its stores and online capabilities like it needed to.
“We are hopeful that under Roark’s guidance, Subway will take action and the entire brand will benefit.”
Rick Scardino, Principal of Lee & Associates of Illinois, and Director of its retail brokerage group, tells GlobeSt.com that Subway has had an enormous, decades-long growth period, but has been subdued by the explosive growth of new market entrants, including Jersey Mike’s, Potbelly, Quizno’s, Cousin’s, and Roark Capital’s own Jimmy John’s.
“Subway was once a desirable, automatic lease you could count on in a new retail center,” Scardino said. “Now, many developers look for a more interesting signature tenant to fill that slot and drive traffic.
“While Subway has recently switched to freshly sliced meats in all their locations, it is the most dramatic change they have made in decades. With its vast portfolio of franchised restaurant chains, I am confident that Roark Capital will have the experience and bandwidth to help instill even more innovation in the tens of thousands of existing and new Subways. This should help restore Subway’s status as a highly coveted retail tenant.”
Scardino said that as Roark’s portfolio is concerned, long-standing Subway franchisees are ideal candidates to become franchisees of another brand, which could potentially be a built-in source of growth for the private capital firm.”
Roark holds investments in several large restaurant chains, including Arby’s, Auntie Anne’s, Buffalo Wild Wings, Carvel, and Sonic, among others.
The deal’s closure is “subject to regulatory approvals and customary closing conditions, Subway said.