Roark Capital to buy Subway for up to $9.55 bln

On Thursday, Roark Capital, a private equity firm, has entered into an agreement to acquire Subway, the U.S. sandwich chain, as confirmed by individuals familiar with the situation. The transaction is reported to value the sandwich chain at a potential $9.55 billion, encompassing debt.

This valuation is contingent upon specific financial performance targets. The acquisition draws to a close an extensive auction process that commenced in February and drew attention from multiple private equity firms.

For the entire agreed-upon transaction value to be realized, Subway's cash flow must achieve certain benchmarks over a span of two years or more following the completion of the deal, according to insider sources. Excluding the earn-out arrangement, the deal holds a value of $8.95 billion.

In a marketplace characterized by challenges in mergers and acquisitions, earn-out structures, while less common within the consumer and retail sector, are growing in prevalence as a means to harmonize disparities in pricing.

The insiders indicated that this framework facilitated bridging the gap in valuation expectations between Roark Capital and the owning families, the DeLuca and Buck families, who founded Subway almost six decades ago in Connecticut.