Hold onto your sandwiches, folks, because the world’s largest fast-food chain Subway is up for sale, and private equity firms are vying for a piece of the pie. The company has been seeking a buyer since February and hopes to fetch a price tag of more than $10 billion, according to Reuters.
But the current environment for leveraged buyouts has been challenging due to rising interest rates and concerns about an economic slowdown. This has made it difficult for buyout firms to secure financing for their deals.
To overcome this, Subway’s financial adviser, JPMorgan Chase & Co, has put together a $5 billion debt financing package that it hopes will entice potential buyers. The package includes a mix of loans and bonds, equivalent to 6.75 times Subway’s 12-month earnings before interest, taxes, depreciation, and amortization (EBITDA).
However, this financing may only be a temporary solution, as a private-equity buyer of Subway would be better off financing the acquisition over time through a whole business securitization (WBS). This would include borrowing with restaurant franchise royalties as security. On the other hand, WBS financing necessitates store-by-store due diligence by rating agencies, which might take up to a year.
More than ten private-equity firms, including TPG Inc, Bain Capital, Advent International Corp, TDR Capital, Roark Capital, and Goldman Sachs Group Inc’s buyout arm, have placed second-round bids for Subway. The corporation is now narrowing the pool of potential bidders and will quickly allow them to collaborate before submitting final bids.
Subway has been undergoing a major revamp of its operations, including a menu overhaul and marketing campaign, to deal with outdated decor and declining profits for franchisees. This turnaround plan has helped sales grow, and the chain reported a 12.1 percent increase in global comparable sales in the first quarter of this year.
Founders Fred DeLuca and Peter Buck started Subway in 1965 with a single restaurant called “Pete’s Super Submarines” in Bridgeport, Connecticut. Since then, the chain has grown to nearly 37,000 locations globally. But it has been facing growing competition from rivals such as Firehouse Subs, Jimmy John’s, Jersey Mike’s Subs, and Potbelly Corp.
So, who will ultimately end up with the keys to the Subway kingdom? Only time will tell, but one thing is for sure: this sale is going to be a meaty one.
For all the latest business News Click Here
