Anyone want to buy a sandwich chain?
Subway on Tuesday confirmed what we’ve known for weeks now, that the company is exploring a potential sale. The Milford, Conn.-based chain sent out a press release saying it has hired J.P. Morgan to advise it on the process.
The sale process comes nearly two years after the death of Peter Buck, the company’s co-founder, who left his 50% interest in the hands of his foundation.
Subway operates about 37,000 global locations, including 21,000 in the U.S. The company has a reported asking price of $10 billion, which would be less than the price that Inspire Brands paid for Dunkin’ in 2020.
Yet the market for mergers and acquisitions is more difficult now, given high interest rates and concerns about profitability.
Subway itself might simply be rooted in a relative lack of buyers willing or able to buy a restaurant chain priced that much. Restaurant Brands International, which once considered buying the chain, has since acquired the much smaller Firehouse Subs. Roark Capital-backed Inspire, meanwhile, already owns Jimmy John’s. And private equity firms have largely steered clear of the industry, though that might change with valuations down and a belief that profitability could be on the way up.
The sandwich company will also need to prove that its sales have turned around. Subway has closed about 8,000 restaurants since its peak of about 45,000 global locations, including a decline of 6,000 restaurants in the U.S.
Subway argues that it is on the upswing. The company recently said that its global same-store sales rose 9.2% last year. It also said that average unit volumes were their highest since 2012, which would be between $473,000 and $481,000 per restaurant. CEO John Chidsey said earlier this month that unit count had reached an “inflection point” in the U.S., suggesting the rate of closures had slowed dramatically. Subway closed a net 182 restaurants in 2022.
Chidsey also suggested that the brand has enormous potential outside the U.S., where unit count has declined by some 2,000 restaurants over the past five years.
With other major brands operating about twice as many locations outside the U.S. as inside, Chidsey argued that Subway could have 40,000 global restaurants to simply match companies like Burger King, McDonald’s and Domino’s. Subway currently operates about 16,000 international restaurants, meaning it needs another 24,000 locations to match that number.
That could be a signal to potential buyers of the growth potential at the company.
“The management team remains committed to the future and will continue to execute against its multi-year transformation journey, which includes a focus on menu innovation, modernization of restaurants and improvements of its overall guest experience,” Subway said in a statement.
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