Could the Subway franchise system be acquired for 10 billion dollars and who could the secret buyer be?

While Subway admits it is exploring a possible sale there are no details as to who might be considering this acquisition. We'll look at some possibilities shortly. We have been hard on Subway in the past and the fact remains Subway has closed over 8,000 stores since their peak at 45,000 locations a few years ago, 6,000 of those stores closed were right here in the USA.

Subway has an interesting history it was founded in 1965 when 17 year old Fred Deluca borrowed $1,000 dollars from Peter Buck, a nuclear physicist, to open a takeout shop in Bridgeport. At the time it was called “Pete’s Super Submarines” I guess Peter Buck wanted the namesake after all he had dropped $1000. The following year they opened a second store and changed the name to "Subway" a couple of years after that. Dr. Buck claims that for 15 years he and Fred ran the shops and didnt turn a profit. As we know that all changed and by 2002 Subway became the largest fast food chain in the USA. Fred Deluca passed away in 2015 and Peter Buck passed in 2021 and had turned his $1000 investment into almost 2 billion dollars. Dr. Buck was reported to have remained thrifty living in the same house and driving aging cars many years after becoming a billionaire.

That's a heartwarming success story but depending on who you ask some will say Fred Deluca turned Subway into a money driven empire that preyed on unsuspecting franchisees. The 8000 Subway franchise owners who lost all their money when their stores closed probably would agree.

We haven't done an update since our last video a couple of years ago but since then Subway has actually been trending up. Last year Subway closed only 182 stores, which is not great but far less than it's 1000+ a year recent trend. Additionally Subway claims it's sales have increased to double digits in North America.

Back in 2020 Subway unit earnings were the 2nd lowest on the QSR50 at 375k gross. That number is expected to be in the mid $400's based on statements made by corporate.

Subway has made a lot of changes in the past couple of years adding meat slicers to their stores, remodeling restaurants, and creating entirely new menus. Subway also recently beat out Chick-fil-A coming in third place for app downloads with over 1 million being beat only by Starbucks and McDonalds. Subway claims all of these changes are the reason for their increase in sales.
But is the real reason Subway unit stores are more profitable today really because of these new menus and remodeled locations, or just because they closed 6000 stores? Obviously if the Subway down the street closes, your location will pick up those customers making your location more profitable. Probably a bit of both but certainly we cant attribute all the growth to meat slicers.

Subway actually had an offer before the founder Fred Deluca passed away for over 10 billion but it was turned down. Today we have higher interest rates and an uncertain economy so the offer is likely to be lower than a few years ago.

Lets look at who might be considering the acquisition. As we understand there are 4 groups in play. Goldman Sachs, which would be strange as they dont really have restaurant experience. Bain Capital is also looking and they do have franchise experience with stakes in Bloomin’ Brands, Domino’s, Burger King, and Dunkin’. TDR Capital with Stonegate Pub and Napaqaro and TPG with Burger King, Mendocino Farms, and Philz Coffee.

Im just going to spitball here with other companies that could handle an acquisition of that size. Roark capital has 105 franchise brands and owns a majority share in Inspire brands that owns Arby's, Sonic, Baskin Robbins and others. The potential issue is that Inspire Brands already owns Jimmy Johns which would create a conflict.
RBI Group - they already considered buying Subway in the past and they own Tim Hortons, Burger King and Popeyes . But the potential conflict is they have since acquired Firehouse Subs. So unlikely they will be in the mix.
More likely would be Yum Brands, They own Pizza Hut, Taco Bell and KFC so a lot of experience in food and they don't have a Sub brand. But why Yum brands may not be a fit is they focus more on Multi Unit ownership. An average Yum brands owner has 35 locations while Subway has majority single unit operators so it may not be a fit.

And a wild card, Warren Buffet and Berkshire Hathaway. They have some franchising exposure with Dairy Queen and Orange Julius, and they have the money to make it happen.

Its a volatile economy, we are seeing hundreds of Burger King locations closing, Major Popeyes franchisees have recently declared bankruptcy, banks are closing, interest rates are rising and inflation is rampant which hits food franchises disproportionately. Will Subway be sold for 10 billion or for much less, or not at all?

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