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by Abigail Summerville, Anirban Sen and Deborah Mary Sophia

The investment fund Roark Capital will buy the American fast food chain Subway for 9.55 billion dollars (8.81 billion euros), ending long-term negotiations which gave rise to several competing offers, have indicated sources familiar with the matter.

The amount of the transaction is subject to an “earn-out” clause which provides that part of the price depends on future results, the sources said.

In order for the full redemption amount to be paid out, Subway’s cash flow will need to meet certain targets within a given period after the deal closes, they said.

The transaction was valued at 8.95 billion dollars, excluding the “earn-out” clause, according to the sources.

Roark Capital won against a rival group led by TDR Capital and Sycamore Partners, which presented a final offer of $8.75 billion, or $8.25 billion excluding the “earn-out” clause, sources say aware of the file.

The deal aligned the expectations of Roark Capital with those of the DeLuca and Buck families, owners of Subway, the sources say.

Subway, which has about 37,000 restaurants in more than 100 countries, did not disclose terms of the deal Thursday.

This transaction will make Roark Capital one of the largest restaurant operators in the world. It controls Inspire Brands, which owns restaurant chains like Jimmy John’s, Arby’s, Baskin-Robbins and Buffalo Wild Wings.

“Roark brings more than other investors,” said Neil Saunders, managing director of consulting firm GlobalData.

His experience helping restaurant brands grow will come in handy, “particularly in the US market, which remains well below its highs reached a few years ago,” he added.

In February, Subway announced it was exploring the possibility of a sale of its business due to rising costs and growing competition from rivals with larger financial means, sparking interest from private equity firms. such as Roark, Advent International, TDR Capital and TPG, as well as the asset management arm of Goldman Sachs.

The restaurant chain was then hoping for a valuation of more than $10 billion, due to the strength of its brand and its international activities. But the takeover candidates countered that it was worth less because of the saturation of the American market.

Owned by its founding families since opening its first outlet in 1965, Subway struggled for several years against competition from rivals until revamping the menu and increasing its marketing spend in 2021.

These efforts appear to be paying off as Subway same-store sales in North America increased 9.3% in the first half of 2023.

Roark Capital and Subway have 12 months to complete the deal, which includes a 4% severance fee, the sources say. These costs cover the possibility that the competition authorities rule against the operation.

(Report Anirban Sen and Abigail Summerville in New York, Deborah Sophia in Bangalore, Corentin Chapron, editing by Kate Entringer)

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