TDR, Sycamore in talks for joint Subway bid -sources

By Anirban Sen and Abigail Summerville

NEW YORK (Reuters) – Private equity firms TDR Capital and Sycamore Partners are in talks to team up in their pursuit to acquire sandwich restaurant chain Subway, people familiar with the matter said on Thursday.

Subway expects to fetch well over $9 billion in a deal, and it remains uncertain whether TDR and Sycamore can meet its price expectations, the sources said. Another group led by Roark Capital remains in the running, the sources added.

The bidders are continuing to carry out due diligence, and Subway may wrap up the sale process by the end of the month, one of the sources said.

Private equity firm Advent International, which had teamed up with Goldman Sachs (NYSE:) Asset Management on a bid for Subway, has dropped out of the process, the sources said. Goldman Sachs may decide to team up with one of the other bidders, the sources added. Bloomberg News reported earlier on Advent’s exit.

A consideration for Roark in seeking to acquire Subway has been its ownership of Jimmy John’s, another sandwich chain, according to the sources. The two sandwich franchises compete for a similar base of customers and franchisees, though Roark is betting that the strategies of the two brands will not conflict with each other.

Champaign, Illinois-based Jimmy John’s has more than 2,600 restaurants in 43 states. Milford, Connecticut-based Subway has more than 37,000 restaurants in over 100 countries.

Subway, Roark and TDR did not immediately respond to requests for comment. Advent, Goldman Sachs and Sycamore declined to comment.

Founded in 1965 by 17-year-old Fred DeLuca and family friend Peter Buck, Subway has been owned by the founding families since its first restaurant opened as “Pete’s Super Submarines” in Bridgeport, Connecticut.

The Milford, Connecticut-based company has been revamping its operations to deal with outdated decor and $5 deals on foot-long sandwiches that eroded franchisees’ profits. In 2021, the chain launched a menu overhaul and splashy marketing campaign as it embarked on a turnaround plan that has helped sales grow.

Subway, which has closed thousands of U.S. locations since 2016, said a year ago that it wants to shift away from its current base of small franchisees that own just one or two shops, which tend to be family-run and sometimes barely scrape by. The company saw a 9.85% increase in same-store sales in the first half of 2023. Its 12-month earnings before interest, taxes, depreciation and amortization are around $800 million, according to the sources.

JPMorgan Chase & Co (NYSE:), the investment bank advising Subway, has given the private equity firms vying for Subway a $5 billion acquisition financing plan, Reuters has reported.