Billion Acquisition Could Potentially Revolutionize the Franchise Industry

Two prominent franchise brands, Subway and Jersey Mike’s, are reportedly in talks for potential acquisitions by private equity firms after years of being privately owned. This development highlights the growing influence of heavyweight private equity (PE) firms in the franchising sector, paving the way for a strategic shift and reshaping the industry landscape.

Private equity firms have been actively seeking out top franchise brands with significant scale to attract professional investors, and both Jersey Mike’s and Subway have emerged as key players in this regard. Subway had previously announced a planned acquisition by Roark Capital for a projected .5 billion, although the deal has yet to be finalized and has faced scrutiny from the Federal Trade Commission. Recent rumors suggest that Jersey Mike’s is also considering a sale to PE firm Blackstone, with a potential valuation of billion.

Jersey Mike’s has carved out a niche as a growth-oriented business with strong unit-level economics, substantial untapped potential in the US market, and a burgeoning international expansion strategy. Owner Peter Cancro’s hands-on approach to the business has cultivated a loyal customer base and an entrepreneurial ethos. In contrast, Subway’s sale is being managed by the shareholders’ estates, while Cancro is weighing the decision to bring in a partner. The sale of Jimmy John’s to Roark in 2019 likely prompted Cancro to consider PE valuations. According to Technomic, Jersey Mike’s, the second-largest sub-style sandwich brand, experienced impressive sales growth, reaching .3 billion in 2023.

Cancro’s reluctance towards a PE transaction is evident in his public statements, reflecting his longstanding aversion to PE involvement due to the significance he places on the company’s culture. Jersey Mike’s strong cash flow has enabled significant securitization and substantial returns to stakeholders in recent years, sparking debates about the necessity of PE funding for further expansion. However, the allure of an billion valuation presents a compelling opportunity.

Jersey Mike’s potential for acquisitions to drive franchisee expansion showcases Cancro’s entrepreneurial vision and track record in building iconic brands. While a PE partnership could offer avenues beyond a simple equity sale, Cancro’s decision marks a significant moment for the franchising industry, illustrating the evolving landscape shaped by PE engagement. Amid the trend of smaller brands rushing into PE acquisitions, Jersey Mike’s stands out for its entrepreneurial resilience in the face of transformative change.