The Subway sale is not a done deal. And it may not be done for months.
The U.S. Federal Trade Commission has apparently opened an investigation into Roark Capital’s acquisition of the sandwich giant, the publication Politico reported on Tuesday, citing multiple sources.
The agency is apparently concerned about the level of dominance Roark would have in acquiring Subway. Roark also owns Subway rival Jimmy John’s, through its Inspire Brands arm, along with McAlister’s Deli and Schlotzsky’s, through Focus Brands.
The investigation, which Politico said started earlier this month, is in its early stages and “any resolution is likely months away.” And such investigations can drag on for some time. The agency could either work out an agreement between the two companies, sue to block the merger or do nothing.
The Sysco-US Foods merger, for instance, would ultimately take 18 months to be resolved, and in that case Sysco backed out after the FTC sued to block the deal.
The question is whether Roark Capital would have too much dominance in a market in which it operates two of the largest sandwich chains in the country.
The Atlanta-based private equity firm is a massive owner of U.S. restaurant chains. If the deal were to go through, it would operate chains with nearly $49 billion in total system sales, more than McDonald’s in the U.S., based on 2022 sales.
The combination of Subway and Jimmy John’s, however, would only have a similar level of dominance in that market as McDonald’s, Chick-fil-A and Taco Bell have in their respective markets, according to a Restaurant Business analysis.
It’s possible that the FTC could use the process to win concessions from Subway over its treatment of franchisees, one of the agency’s areas of concern. The agency at least in theory could also prompt Roark to offload one of its holdings—there has long been speculation that the private equity firm would take Inspire Brands public, for instance.
Representatives for Subway did not respond to a request for comment Tuesday.
Regardless, the apparent investigation adds another layer of uncertainty to what has been a year-long sale process. An FTC investigation could take more than a year and if it lands in court the process can go even longer.
The FTC’s objection to the proposed Sysco-US Foods merger, for instance, would not be resolved until 18 months after that deal was first announced. And the resolution involved Sysco backing out of the deal.
Subway put itself on the market in January, nearly two years after the death of Peter Buck, the last of the chain’s two founders. The process took several months amid concerns about the financial health of the brand’s franchisees.
But Roark agreed to acquire the firm for $9.6 billion, though that apparently includes an earn-out provision, meaning the company would have to make certain financial targets for the sellers to get the full price.
Operators have closed about 7,000 of the chain’s restaurants over the past eight years, taking the company from nearly 27,000 U.S. restaurants to just over 20,000. Worldwide, the chain operates nearly 37,000 units, but that decline cost the company its title as world’s biggest restaurant chain by unit count.
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