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Unless you’ve been on some sort of darkness retreat for much of 2023, then you’ve probably heard that Subway is on the market.
The process, to this point, is proving to be one of the industry’s worst-kept secrets, with reports on the apparent price tag and likely suitors emerging in recent weeks. Let’s catch up with a couple:
The New York Post reported recently that Subway is talking with some private equity firms. But it included a new price tag: $8 billion.
If you recall, the valuation floated in early January, when the Wall Street Journal first reported the sale, was $10 billion. As we’ve pointed out before, such numbers are not always connected with reality, so the numbers can fluctuate over time. But it’s still worth noting that the reported valuation has come down.
The Post put the acquisition multiple for Subway at between 10- and 12-times EBITDA, or earnings before interest, taxes, depreciation and amortization. That would be about half the multiple that Inspire Brands paid for Dunkin’ in 2020, or what Restaurant Brands International paid for Popeyes in 2017. That’s a relatively low multiple for a well-known, international fast-food chain.
Meanwhile, Sky News over the weekend reported that Goldman Sachs’ investment arm is among the private equity firms interested in Subway. Sky also reported that Bain Capital, TDR Capital and TPG were interested. TSG Consumer Partners, which has invested in Yard House, Dutch Bros and Planet Fitness, is “monitoring the situation.”
Bain Capital might be a particularly intriguing buyer. Bain & Co., the management consulting firm, worked with Subway starting in 2018. While the two Bains are separate, partners with the consulting firm started Bain Capital in 1984. Bain & Co. partners can invest in the investment firm and do a lot of consulting work with them.
In any event, Bain Capital is no stranger to the restaurant industry, having been part of an investment firm triumvirate that owned Dunkin’ before taking that public in 2011.
The reported valuation for Subway likely reflects current reality. The company is unlikely to be sold to one of the multi-brand operators that could be more willing and able to pay a higher multiple. High interest rates may also limit what investment firms could spend, and Subway’s recent history—even considering improvement over the past two years—would work against a sale process.
Subway could have fetched far more than $8 billion years ago. Cofounder Fred DeLuca apparently turned down an offer well above $10 billion before he died in 2015, sources have said. Subway also received overtures before the pandemic from its business developers, who contract with the company to sell and oversee franchisees in specific regions.
Subway has been buying out those developers under CEO John Chidsey, however, and he’d previously said in an interview with Restaurant Business that the company plans to buy out most, if not all, of the rest.
That is one of the numerous strategies the company has undertaken in recent years to overhaul its business. We can think of few restaurant chains that have done more over the past two years than the Milford, Conn.-based Subway.
The brand is working to convince franchisees to remodel locations; it has made major changes to its menu and is preparing to add slicers to its restaurants to give a better perception of quality and has overhauled its marketing. The efforts have helped generate stronger sales over the past two years, leading to the best average unit volumes in nearly a decade. Subway also wants to bring in large-scale operators, though it has had little luck with that so far.
It is also taking steps to spread its locations into non-traditional locations, going so far as to experiment with vending machines, and it recently announced plans to create a national network of electric vehicle chargers. It also opened a new second headquarters in Miami and is planning to move into a new headquarters facility in Connecticut.
Subway has likely decided a sale is a necessity at this point, following the death of cofounders DeLuca and Peter Buck, the latter of whom left the chain to his foundation.
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