An auction of Subway Restaurants has drawn lackluster interest from prospective buyers — forcing the sandwich chain to push back bidding deadlines and raising the possibility of a lower sale price, The Post has learned.
Insiders are now pegging a takeout price for the fast-food giant at upwards of $7 billion — well short of the $10 billion it had been seeking when news of the auction was first reported by the Wall Street Journal on Jan. 11.
After taking an initial round of bids in late February, sources said Subway has failed to set a deadline for second-round bids, which typically comes a few weeks after indications of interest are submitted.
Now, committed offers won’t likely be due until late this month — a delay meant to give suitors more time to conduct due diligence, according to sources close to the process.
One big problem: Rival fast-food giants like Yum Brands, owner of Taco Bell and KFC; and Burger King owner Restaurant Brands International — so-called “strategic” buyers that would be better positioned to pay a high price for Subway — don’t appear to be participating in the auction, a source said.
Private equity firms including Bain Capital, Clayton, Dubilier & Rice and TPG Capital are meanwhile circling Subway, a source close to the situation said.
A Subway spokeswoman declined to comment.
Bloomberg reported last week that private equity firm Roark Capital is also in the mix. Roark owns Inspire Brands that is the parent company of Arby’s, Buffalo Wild Wings, Dunkin’ Brands, Sonic and Subway rival Jimmy John’s. Gas station and restaurant operator EG Group is also a possible suitor, according to Bloomberg.
According to sources, Subway has barred buyout firms from partnering now on an acquisition — a move to keep the auction competitive that nevertheless signals weak interest.
“They want to prevent everyone teaming up and driving the price down,” a source close to the situation said. “Subway likely will be sold but price is an issue.”
Subway also has barred suitors from speaking to lenders about leveraged financing other than its own adviser, JPMorgan — a policy meant partly to prevent leaks, sources close to the situation said.
The chain on Feb. 14 confirmed it was exploring a sale.
Prospective bidders are parsing the numbers as Subway — which last year revamped its menu and tapped athletes like Tom Brady, Derek Jeter and Steph Curry as spokespeople to revive its sagging sales — has yet to demonstrate a solid rebound in its business.
The buyout firms will likely be able to borrow money equal to about six times Subway’s roughly $700 million in Ebitda, or earnings before interest, taxes, depreciation and amortization, according to a source close to the process.
Offers with that level of financing might value the company at 10 times Ebtida, or $7 billion, although the process is still fluid and the numbers could change, the source said.
Subway collects an 8% royalty fee from its restaurants, whose numbers have been declining. All locations are franchised and none are owned by the company.
At its 2015 peak, Subway had more than 27,000 stores. But during the 12 months ended April 4, Subway lost a net 555 US restaurants to wind up at 20,562, a 2.6 percent decrease, according to ChainXY Solutions, a consulting firm that tracks restaurant openings and closings.
Meanwhile, rival Jersey Mike’s over the same period added 359 net restaurants to end up at 2,459, a 17% jump while McDonald’s was flat, opening about the same number of stores it closed, according to ChainXY.
“What we can tell from the data is that Subway is closing many shops as Jersey Mike’s expands and McDonald’s seems to stagnate,” Tara Newman, VP of business development at ChainXY told The Post.
Former Subway spokesman Jared Fogle was convicted in 2015 for possessing child pornography, a public relations disaster that was followed by Subway’s yearslong decline.
Many Subway franchisees have been losing money recently as they are being forced to stay open more hours and are facing strong competition from sandwich upstarts Jersey Mike’s and Jimmy John’s, sources said.
Subway in the last few months has made it harder for franchisees to close as it works to slow the decline, The Post reported exclusively last month.
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