Subway was first reported to be exploring a potential sale in January and then the company more recently confirmed that news, somewhat surprisingly so.
In the process, the company has ignited one of the most interesting sale processes in years. Few brands have been sold that approach Subway’s apparent 11-figure asking price. Fewer still do so in a sale process. And they almost never make that process this public.
Subway is a well-known, global brand with more locations than any other company but McDonald’s. It has no debt, generates a ton of cash and management has taken several, significant steps that should build earnings in the coming years. But its location count has been falling and it still has low average unit volumes that might give some buyers pause.
Regardless, the company is likely to attract plenty of interest, at least initially. And that makes it worth taking a look at who could end up with the chain—and who won’t. Fair warning: All this is pure speculation on my part because speculating on buyers is fun.
Potential buyers
The field. I liken this whole process to choosing the golfer who will win the next Masters. Sure, you can pick from two or three perennial favorites. But I’ll pick “the field,” simply because in terms of numbers you’re more likely to be right, anyway. Over the years, any number of newcomer investment firms jumped into the market with a big splash. In 2012, for instance, JAB Holding was little known in the U.S. until it bought Peets Coffee, ushering in a several-year run of acquisitions. In 2010, 3G Capital did not own a restaurant chain. After 2010, 3G owned Burger King. You never know. This is the most likely scenario.
Pick your random private equity firm. Or firms. A big investment firm, or perhaps a few of them in tandem, could certainly step in and make a splash. This is especially true if the firm believes it is getting a global restaurant brand at a relatively low acquisition multiple. Perhaps Bain Capital, which has taken shots on difficult franchise restaurant brands before, could cobble together a few partners. This is the second most likely scenario.
Roark Capital. We’d be remiss if we did not mention Roark, which has been involved in progressively larger purchases of franchise companies over the years and cannot be overlooked. Not saying they will. Just saying Roark likes buying franchise brands, Subway’s a franchise brand, ergo Roark is a potential buyer of Subway.
Jollibee Foods Corp. The Philippine company, owner of the Jollibee chain, has been eager to make a big splash in the U.S. and Subway would fit the bill. Jollibee would get a huge foothold in the U.S. and could help the chain expand internationally.
Interesting question marks
Panera Brands. Hey, remember when JAB was buying everything not attached to the ground and paying a high multiple in the process? Maybe JAB opts to buy Subway for what it considers a lowish multiple, combines it with Panera and takes the whole thing public.
Berkshire Hathaway. The investment vehicle of Warren Buffett already owns Dairy Queen. And it’s been involved in 3G-funded deals in the past. Hey Warren, want a sandwich chain? Combine it with DQ and suddenly you’ve got a franchise behemoth.
Unlikely
Yum Brands. We should spend some time on this one. Yum, the owner of KFC, Pizza Hut, Taco Bell and Habit, makes the most sense on paper. It could certainly afford the price tag. A turnaround of Subway could set it up for all kinds of international growth. But Yum is not in the market for large-scale acquisitions, as the Habit purchased proved. So, this one is unlikely, unless perhaps the deal is just too good. And then still it’s doubtful.
Any other publicly traded company. It’s certainly possible that a random publicly traded company like Domino’s or Wendy’s (or someone else) could decide to get into the multi-brand game. But those companies have said in the past they’re fine on their own and we doubt a publicly traded restaurant operator would make such a move. Not unless the deal was just too good to pass up.
Nope
Inspire Brands. The owner of Arby’s and Dunkin’ could also afford Subway. But Inspire is not going to buy Subway because it also owns Jimmy John’s.
Restaurant Brands International. The owner of Burger King and Popeyes is not afraid of a big deal (see: Tim Hortons purchase, 2014). And it did poke around Subway years ago. But it now owns Firehouse Subs.