Two renowned brands, Subway and Jersey Mike’s, are potentially poised for sale to private equity firms after years of closely held ownership. This development underscores the increasing influence of heavyweight private equity (PE) firms within the franchising sector, signaling a strategic shift and reshaping the industry landscape.
Private equity has been actively targeting top franchise brands with significant scale to attract professional investors, and Jersey Mike’s and Subway have emerged as notable exceptions until now. While Subway had announced a planned acquisition by Roark Capital for an anticipated $9.5 billion, the deal has yet to be finalized and has drawn scrutiny from the Federal Trade Commission. Rumors now suggest that Jersey Mike’s is also contemplating a sale to PE firm Blackstone, potentially valuing the company at $8 billion.
Jersey Mike’s stands out as a growth-oriented business with robust unit-level economics, boasting ample untapped potential in the US market and an evolving international expansion strategy. Owner Peter Cancro’s deep involvement in the business has fostered a strong customer following and an entrepreneurial culture. In contrast, Subway’s sale is being orchestrated by the estates of the shareholders, while Cancro is personally deliberating whether to bring in a partner. The sale of Jimmy John’s to Roark in 2019 likely sparked Cancro’s consideration of PE valuations. Jersey Mike’s, the second-largest sub-style sandwich brand, has experienced remarkable sales growth, reaching $3.3 billion in 2023, according to Technomic.
Cancro’s hesitancy towards a PE transaction is evident in his press interviews, reflecting his longstanding avoidance of PE involvement due to the importance he places on the company’s culture. Jersey Mike’s robust cash flow has supported significant securitization and substantial distributions to stakeholders over the past few years, raising questions about the necessity of PE investment for further growth. However, the allure of an $8 billion valuation poses a compelling proposition.
Jersey Mike’s potential for acquisitions to facilitate franchisee expansion underscores Cancro’s entrepreneurial vision and track record in growing iconic brands. While a PE partnership could offer opportunities beyond a simple equity sale, Cancro’s decision represents a pivotal moment for franchising, reflecting the evolving landscape shaped by PE involvement. Amidst the prevailing trend of smaller brands rushing into PE acquisitions, Jersey Mike’s exemplifies admirable entrepreneurial resilience in the face of transformative change.
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