Subway sandwich chain exploring sale after record-setting year

Subway, one of the world’s largest restaurant chains, said it’s exploring a possible sale—offering a rare opportunity to nab a truly global brand.

The announcement Tuesday confirms earlier reports that the Milford, Connecticut-based company is shopping itself to potential suitors. Bloomberg News reported last month that a deal could value the closely held company at more than $10 billion.

JPMorgan Chase is advising Subway in the process. The company, which has about 37,000 franchise-run locations in more than 100 countries, said that 2022 was a “record-setting year” and it had posted eight consecutive quarters of positive same-store sales growth.

“The management team remains committed to the future and will continue to execute against its multiyear transformation journey,” Subway said in a statement. This includes new menu items, restaurant modernization and improving diner experience, it said.

Subway is up against big restaurant chains, including McDonald’s and Burger King, that are investing heavily to improve their locations’ appearance. They’re also adding online and mobile ordering, as well as kiosks to ease the ordering process.

Subway said earlier this month that it’s “ensuring all restaurants across the system are in the right location, format and image, and operated by the right franchisees who have the resources and passion to be part of the brand’s transformation journey.” It plans to remodel 3,600 locations in North America this year.

The chain reported a 9.2% increase in same-store sales for the year. For comparison, McDonald’s posted 10.9% growth by that measure last year, while Starbucks’s expansion was 6.8%.

Subway, one of the most recognizable names in the industry, has more than 20,000 U.S. locations, making it the largest by store count in the country, dwarfing even McDonald’s. The company’s lack of drive-throughs hurt it during the pandemic, however, when many dining rooms were closed.

The company’s business model has been the subject of criticism by its franchisees, who accuse it of opening new locations in close proximity to others, curbing operators’ potential sales and profit.

In its Feb. 2 press release announcing 2022 results, Subway said it’s “focusing on strategic brand growth to boost franchisee profitability and protect the brand’s position in the market.”

If a potential buyer such as a private equity firm wants to use debt to help finance a bid for Subway, they could have trouble finding financing.

The junk bond and leveraged loan markets saw borrowing costs spike drastically in the last year as the Federal Reserve raised interest rates in response to inflation. Banks are still nursing losses and have billions of dollars of hung debt stuck on their balance sheets crimping their ability to commit to new deals. That could encourage potential buyers to seek out debt financing from private credit firms, such as in Carlyle Group’s recent bid for health-care technology firm Cotiviti.