The dollars are real even if the tuna isn't

Happy Sunday. Let’s get started:

After a months-long process, Roark Capital edged out rival private equity suitors to get its hands on sandwich chain Subway. It’s one of the year’s largest private equity buyouts and a huge bet for Roark.

The Transaction

The Atlanta-based firm will pay $9 billion upfront, plus an additional $600 million earn-out. That roughly pencils out to a 12.0x EBITDA multiple; a discount to rivals trading in the high teens, but not exactly a bargain.

Roark is purchasing a business that’s become synonymous with both suspect quality and prolonged underperformance. Hitting peak sales of $18 billion in 2012, revenue fell to just $9 billion last year. That’s thanks to more than 6,000 store closures since 2015, plus worsening same-store results.

Franchise Financing

The deal contemplates $5 billion of debt financing (around 6.3x leverage), though with more creativity than your typical buyout.

A group of seven banks will provide temporary funding, with the expectation that Roark will soon refinance into one of the largest whole-business securitization deals ever. Under a whole-business securitization, the borrower essentially mortgages all of its cash-generating assets, which, in this case, are primarily royalties and franchise fees.

It’s an approach that’s become popular for fast food businesses, which tend to be capital-light (few hard assets to collateralize), but with secure revenue streams. Roark also has prior experience with the strategy, employing it on deals including Arby's, Dunkin' Brands, and Driven Brands.

The key benefit: cheaper borrowing than traditional debt financing. That provides a welcome cushion for a historically challenged asset in a high-rate environment.

The Roark Angle

Roark beat out TDR Capital, Sycamore Partners, and Goldman Sachs to get its hands on the business. For a private equity firm synonymous with franchised restaurant buyouts, that’s not really a surprise.

It’s the latest in a series of deals that, over the last decade, have solidified Roark’s position as one of the largest restaurant owners in the world. Their portfolio includes iconic chains such as Dunkin', Arby's, Sonic, Baskin-Robbins, Jimmy John's, and Buffalo Wild Wings.

With such a defined focus, Roark tends to function almost as a strategic buyer. They’ve rolled up a number of their chains under the Inspire Brands umbrella, a holding company that leverages shared corporate resources, heightened scale, and various other synergies to compete in a notoriously difficult industry.

Subway CEO John Chidsey says the business plans to remain an independent operating company under Roark’s ownership, but that could change (as could the executive leadership team). Either way, the firm brings specialized experience and a trusted playbook.

Roark also tends to prefer longer-term investment timelines, a deviation from the typical five-year private equity hold period that allows for more transformational change.

Not Just the Bread That’s Stale

It’s going to be a heavy lift for Roark, which has tasked itself with reinvigorating an aging brand that’s fallen far behind peers.

Fast food rivals like McDonald’s and Burger King have been investing heavily in location modernization efforts. On the other side of the market, Subway is getting squeezed by emerging chains like Panera Bread and Potbelly which have built a reputation for higher quality offerings. And, everyone is getting hit by a shift in consumer preference toward more health-conscious dining.

Many industry operators also believe that Subway overexpanded in the U.S., cannibalizing sales and pressuring franchise operators. Much of that expansion centered on urban business districts — a footprint that has left the chain exposed to a slow post-pandemic return to work.

What’s Next?

Things could be worse — following the launch of a menu revamp and store revitalization, Subway said earlier this year that it notched 10 straight quarters of positive same-store sales growth in the U.S.

Next on the roadmap is a further refresh of existing locations, full roll-out of mobile ordering, and a focus on international expansion.

There’s also an emphasis on multi-unit franchisee agreements, moving away from single-unit operators. That could unlock improved performance from more professionalized operating partners, while also furthering a successful entrance into non-traditional locations such as college campuses, airports, and convenience stores.

Time will tell if Roark can ride soggy tuna melts all the way to a successful exit, or if they’ve made an expensive mistake on an old brand that isn’t worth saving.

1. Chip design firm Arm filed for what is expected to be the year’s largest IPO.

• Arm filed this week for its U.S. IPO, which will price next month and should see a post-Labor Day roadshow.

• Final figures aren’t yet available, but early reports suggest a potential $6 billion raise. On valuation, SoftBank recently completed a share transaction with its Vision Fund at a $64 billion mark — expect something roughly in this neighborhood. That’s up from SoftBank’s acquisition of the firm in 2016 for $32 billion, though may not be nearly as rich as hoped for.

• The offering comes two years after Nvidia agreed to buy Arm for $40 billion, but was forced to abandon the deal after facing antitrust scrutiny.

• Financials could be better — Revenue was down 1% year-over-year to $2.7 billion for the March-end fiscal year, while net income fell 4.6% to $524 million. Arm is reckoning with a slowdown in semiconductor sales, though could be on the verge of a resurgence thanks to AI-led demand.

2. Intel and Brookfield partner up on new chip factories.

• Arm client Intel has inked a deal with Brookfield to provide up to $30 billion of financing for construction of new chip factories in Arizona.

• Intel and Brookfield each plan on contributing $15 billion, with Brookfield receiving a 49% stake in the project. Intel will maintain majority control.

• Intel wouldn’t provide terms, but guided toward an interest rate between 4.4% and 8.5% — that’s likely a premium to debt financing, but is cheaper than equity. It’s an interesting angle for a strategic/sponsor partnership, an approach that’s becoming more popular.

• The deal provides an early look at how investors may play the CHIPS Act, legislation signed into law earlier this month that includes more than $50 billion of subsidies earmarked for domestic semiconductor research and manufacturing.

3. AI development platform Hugging Face raised at a $4.5 billion post-money valuation.

• Hugging Face raised $235 million in Series D funding led by Salesforce Ventures, with participation from Sound Ventures, Google, Amazon, Nvidia, Intel, AMD, Qualcomm, and IBM.

• Billing itself as the GitHub for AI, Hugging Face provides a platform for developers to share machine learning models and datasets. Plus, it boasts a market-leading transformers library built for NLP applications.

• Beyond the headline: Hugging Face (and its backers) want to position the platform as the ‘GitHub’ for AI, preventing code repository GitHub (and owner Microsoft) from securing a stranglehold on the AI/ML market as well.

The rest of the deal sheet…

• SentinelOne (NYSE: S), a cybersecurity firm trading at a $5 billion market cap, is evaluating a potential sale of the business.

• Permian Resources (NYSE: PR) agreed to acquire Delaware Basin-focused Earthstone Energy (NUSE: ESTE) for $4.5 billion in stock.

• Engie (Paris: ENGIE) agreed to acquire energy storage business Broad Reach Power from owners Apollo Global Management and EnCap.

• BASF (ETR: BAS) has engaged Morgan Stanley to sell its Catalyst and Metal Solutions unit, which could be worth around €3 billion.

• Francisco Partners agreed to acquire the weather business of IBM (MYSE: IBM), which earlier paid more than $2 billion for the unit.

• Tiger Global is evaluating a potential sale of part of its stake in AI platform Cohere at a $3 billion valuation.

• The Jordan Co. is nearing a deal to acquire DuPont's resins unit for around $1.8 billion, per Bloomberg.

• SPARC Group, a JV between Authentic Brands and Simon Property Group, agreed to acquire a minority stake in fast fashion business Shein.

• NextGen Healthcare (Nasdaq: NXGN), an EHR platform provider trading at a $1.2 billion market cap, hired Morgan Stanley to lead a sale process.

• Activist investor Starboard Value acquired a 9.9% stake in Bloomin' Brands (Nasdaq: BLMN), the parent company of Outback Steakhouse and Carrabba’s.

• Alinta Energy agreed to sell its Australian power assets to APA Group (ASX: APA) for A$1.7 billion.

• Weigao Group is exploring a sale of Argon Medical, a medical device manufacturer that could be worth around $1 billion.

• Apollo Global Management acquired a majority stake in natural gas and energy storage business CATEC.

• Cressey & Co. acquired HealthDrive, a provider of clinical care for patients in long-term care facilities, from Bain Capital Double Impact.

• Exponent sold part of its stake in UK-based dairy provider Meadow to Fairfax Financial (TSX: FFH).

• Equinor (EQNR) is considering a sale of its Azerbaijan operations, which could be worth around $1 billion.

• Fidelity International engaged Rothschild to find a buyer for its German fund business.

• Hg is prepping for an exit of GGW Group, a German insurance broker that could be worth around €1.5 billion.

• TA Associates agreed to sell Australian broker Honan to Marsh & McLennan (NYE: MMC) for around A$700 million.

• Goldman Sachs (NYSE: GS) is evaluating strategic options for its personal financial management business.

• Old Dominion Freight Lines offered $1.5 billion for the terminals portfolio of bankrupt trucking company Yellow, above the $1.3 billion stalking horse bid from rival Estes Express Lines.

• I Squared Capital is in exclusive talks to acquire transportation firm Arriva in a deal that could be worth around €1.6 billion.

• PAG agreed to acquire Australian pub operator Australian Venue Co. from KKR for a rumored A$1.4 billion.

• PAI Partners agreed to acquire pet food manufacturer Alphia from J.H. Whitney & Co. for around $1 billion.

• Instacart filed for an IPO on Friday, revealing positive net income and a $175 million investment from PepsiCo. The business has raised $2.7 billion to date and was last valued at $39 billion in 2021.

• Klaviyo, a provider of marketing automation solutions, filed for an IPO on net income of $15 million and revenue of $321 million for the first six months of the year. The company has raised $779 million to date and was last valued at $9.5 billion in a 2022 round.

• Jio Financial Services, a spin-out from Reliance Industries, went public at around a $19.5 billion valuation. Shares slipped more than 10% in the first week of trading.

• Waystar, a medical claims processor owned by EQT and CPPIB, hired Goldman Sachs and JPMorgan ahead of a 2024 IPO that could hit an $8 billion valuation.

• Zeekr, an EV unit of Chinese auto manufacturer Geely, is reportedly considering a $1 billion IPO.

• RayzeBio, a developer of radiopharmaceutical therapies, filed for a $100 million Nasdaq IPO. Existing backers include Viking Global, Versant Ventures, VenBio, Venrock, Sofinnova, and Wellington.

• VNG, a Vietnamese gaming and tech company, filed for a $100m U.S. IPO.

• Ramp, a provider of corporate finance solutions to startups, raised $300 million co-led by Sands Capital and Thrive Capital at a $5.8 billion valuation (down from $8.1 billion in early 2022).

• Northvolt, a Swedish maker of lithium-ion batteries, raised $1.2 billion in convertible note financing. BlackRock, CPP Investments, and OMERS co-led, with participation from Baillie Gifford, GIC, Goldman Sachs, Swedbank Robur, Volkswagen, and Chow Tai Fook Enterprises.

• Axiom Space, a commercial space station business, raised $350 million co-led by Aljazira Capital and Boryung Co.

• Zepto, an Indian grocery delivery platform, raised $200 million in Series E funding led by StepStone Group at a $1.4 billion post-money valuation. Other investors include Goodwater Capital and insiders Glade Brook Capital, Lachy Groom, and Nexus Venture Partners.

• Modular, an AI software development platform, raised $100 million. General Catalyst led, with participation from GV, SV Angel, Greylock, and Factory.

• Nursa, a provider of healthcare staffing solutions, raised $80 million in Series B funding. Drive Capital led, with participation from Pelion and Kickstart.

• Fore Biotherapeutics, a developer of oncology therapeutics, raised $75 million in Series D funding. SR One and Medicxi co-led, with participation from insiders OrbiMed, HBM Healthcare Investments, Novartis Venture Fund, 3B Future Health Fund, Cormorant Asset Management, Wellington Management, and Samsung Securities.

• Korea Credit Data, a corporate accounting platform, raised $75 million at around a $1 billion valuation from Morgan Stanley Tactical Value.

• Cellares, a cell therapy manufacturing platform, raised $225 million in Series C funding. Koch Disruptive Technologies led, with participation from Bristol Myers Squibb, DFJ Growth, Willett Advisors, and insiders Eclipse, Decheng Capital, and 8VC.

• Genesis Therapeutics, an AI drug discovery company, raised $200 million in Series funding. Andreessen Horowitz led, with participation from Fidelity, BlackRock, Nvidia, and insiders Rock Springs Capital, T. Rowe Price, Menlo Ventures, and Radical Ventures.

• Rapport Therapeutics, a developer of precision neuromedicines, raised $150 million in Series B funding. Cormorant Asset Management led, with participation from Fidelity, Goldman Sachs, Logos Capital, Perceptive Advisors, Sofinnova Investments, Surveyor Capital, T. Rowe Price, and insiders Third Rock Ventures, Arch Venture Partners, and J&J.

• Teamshares, a small business equity grant platform, raised $124 million in Series D funding. QED Investors led, with participation from Inspired Capital, Khosla Ventures, Slow Ventures, Spark Capital, and Union Square Ventures.

• Gympass, an employee benefits platform, raised $85 million in Series F funding at a $2.4 billion valuation. EQT Growth led, with participation from General Atlantic and Moore Strategic Ventures.

• Elemental Cognition, a generative AI startup, raised $60 million from backers like Breyer Capital and Bridgewater Associates.

• Viome, a microbiome startup, raised $87 million in Series C funding co-led by Khosla Ventures and Bold Capital.

• Insight Partners set its Fund XIII hard cap at $15 billion, with $3 billion raised to date, per filings.

• G42, a Mubadala-backed firm focused on AI, launched a $10 billion fund focused on technology investments.

• Blackstone closed its fourth TacOps fund with $5.2 billion in capital commitments.

• TPG is targeting $4 billion for its sixth growth equity fund.

• Lexington Partners is targeting $4 billion for its sixth co-investment fund.

• Guggenheim Partners Investments, Guggenheim's asset management business, is targeting at least $1.5 billion for a private credit fund.

• EIV Capital is raising up to $1 billion for a fifth fund focused on energy infrastructure.

• Greenbelt Capital Partners is raising $750 million for a fund focused on the new energy economy.

• Lone View raised $466 million for its debut fund focused on technology investments.

• MC Partners is targeting $450 million for fund IX, with an anticipated close next month.

• Questa Capital raised $397 million for its third venture fund.

• GEF Capital Partners announced the final close of its LatAm Climate Solutions Fund III at $214 million.

1. Flannery Associates has raised more than $800 million from Silicon Valley execs to build a new Bay Area city.

• Headed by a former Goldman trader and with backing from Reid Hoffman and Marc Andreessen, Flannery is busy buying up large tracts of land north of San Francisco. (Check it out: NYT)

2. Multi-manager hedge funds just aren’t so special anymore.

• Further fee compression and an expensive battle for talent are putting pressure on multi-managers like Citadel. The brightest spot in the hedge fund world over the past decade could be about to dim. (Check it out: FT)

3. Private equity dodges the latest attempt at tightened regulation.

• The SEC gets a new private fund rule signed, but with a final version that’s significantly watered down from what they’d hoped for. (Check it out: Axios)

Thanks for reading, catch you guys next week. Drop a line with any feedback or scoops (just reply here; kept anonymous).

— Sam