NEW YORK听–听The bankers running the聽听蹿辞谤听厂耻产飞补测听have given the private equity firms vying for the sandwich chain a $5听产颈濒濒颈辞苍听acquisition financing听辫濒补苍, hoping to overcome a challenging environment for leveraged buyouts and fetch the company’s asking price of more than $10听产颈濒濒颈辞苍, people familiar with the matter said.
Interest rates have been rising and concerns about an economic slowdown have increased since听厂耻产飞补测听聽it was exploring a听蝉补濒别, making听诲别产迟听more expensive and less available for buyout firms pursuing deals. This聽聽on how much the private equity firms are offering to buy companies.
So far, bids for听厂耻产飞补测听have ranged between $8.5听产颈濒濒颈辞苍听and $10听产颈濒濒颈辞苍, one of the听蝉辞耻谤肠别蝉听said.听厂耻产飞补测‘s financial adviser, JPMorgan Chase & Co., is now hoping a $5听产颈濒濒颈辞苍听诲别产迟听financing package it has put forward will show buyout firms they can borrow enough to structure an attractive deal even at a $10听产颈濒濒颈辞苍–辫濒耻蝉听valuation, the听蝉辞耻谤肠别蝉听said.
The听诲别产迟听financing is based on a mix of loans and bonds and its size is equivalent to 6.75 times听厂耻产飞补测‘s 12-month earnings before interest, taxes, depreciation and amortization of about $750 million, the听蝉辞耻谤肠别蝉听added.
It is possible that this financing will serve only as a temporary solution. This is because a cheaper option for a private-equity buyer of听厂耻产飞补测听would likely be to finance the acquisition long-term through a so-called whole business securitization (WBS), the听蝉辞耻谤肠别蝉听said. This would involve borrowing using the royalties of restaurant franchises as collateral.
WBS financing requires store-by-store due diligence by ratings agencies which can take more than a year. Bidders would have to rely on JPMorgan’s听诲别产迟听package or arrange their own financing to听肠濒颈苍肠丑听a deal with听厂耻产飞补测, and then refinance through a WBS scheme down the line, the听蝉辞耻谤肠别蝉听said.
Barclays Plc, a major player in the market for WBS financing, is one of the banks in discussions about long-term financing, the听蝉辞耻谤肠别蝉听said.
Milford, Connecticut-based听厂耻产飞补测听has been revamping its operations to deal with outdated decor and $5 deals on foot-long sandwiches that eroded franchisees’ profits. In 2021, the chain launched a menu overhaul and splashy marketing campaign as it embarked on a turnaround听辫濒补苍聽that has helped听蝉补濒别s grow.
JPMorgan’s financing package also offers the option of a preferred equity component with a roughly 15% interest rate, the听蝉辞耻谤肠别蝉听said. This is a more expensive route that private equity firms may not opt for, three of the听蝉辞耻谤肠别蝉听added.
To be sure,听厂耻产飞补测听is allowing bidders to use any financing route they want, as long as they can show they can secure committed financing.
Second-round bids for听厂耻产飞补测听came in last week from more than 10 private-equity firms, one of the听蝉辞耻谤肠别蝉听said, adding that听厂耻产飞补测听has dropped low bids and is whittling down the pool of final bidders. Bain Capital, TPG Inc., Advent International Corp, TDR Capital, Goldman Sachs Gro耻辫听Inc’s聽buyout arm and Roark Capital are among the private-equity firms that are participating in the auction, according to the听蝉辞耻谤肠别蝉.
厂耻产飞补测听will soon allow bidders to team聽耻辫听before submitting final offers, and Bain, TPG and Advent have already been in discussions about doing so, the听蝉辞耻谤肠别蝉听added.
The听蝉辞耻谤肠别蝉听requested anonymity because details of the聽蝉补濒别听process are confidential. Bain, TPG and Advent declined to comment. TDR and Roark did not immediately respond to comment requests.听厂耻产飞补测, JPMorgan, Goldman Sachs and Barclays declined to comment.
RESTAURANT RENOVATIONS
Founded in 1965 by 17-year-old Fred DeLuca and family friend Peter Buck, the company has been owned by the founding families since its first restaurant opened as “Pete’s Super Submarines” in Bridgeport, Connecticut.
The chain, which has nearly 37,000 locations globally, is moving away from its traditional reliance on franchisees who own only one or two locations and is instead consolidating locations with fewer and larger, well-capitalized franchisees.
厂耻产飞补测听聽global comparable听蝉补濒别s were 12.1% higher in the first quarter and that guest visits rose, driven in part by restaurant renovations. It has been facing growing competition from rivals such as Jimmy John’s, Firehouse Subs聽QSR.TO, Jersey Mike’s Subs and Potbelly Corp聽PBPB.O.
TPG and Bain were part of a gro耻辫听that owned Burger King when John Chidsey, who is now听厂耻产飞补测‘s CEO, headed that burger fast-food restaurant chain. Advent, for its part, has invested in restaurants including Bojangles and caf茅 operator First Watch. TDR operates grocery retailer ASDA and gas station conglomerate EG Group. – Reuters
