The Deal With Two Prices: Roark Capital's Earn-Out Purchase of Subway

Every figure below comes from Subway's own press release announcing the sale, plus contemporaneous financial and trade press reporting on the deal structure and closing, since Subway is a private company with no SEC-filed definitive terms. Full sources cited below.

Deal snapshot

Why an earn-out was the key to closing the valuation gap

Unlike the disclosed, SEC-filed transactions elsewhere in this series, Subway is a private company, the DeLuca and Buck families' Subway IP LLC, so there's no proxy statement, no 8-K, and no fairness opinion to walk through. What's publicly known comes from reporting on the deal rather than regulatory filings, but the reported mechanics are still worth studying closely, because they illustrate a structure that almost never shows up in public-company M&A but is common in private, founder-owned business sales: the earn-out.

Subway went to market in February 2023 hoping for roughly $10 billion, reflecting the brand's international growth and its position as the third-largest restaurant chain globally by unit count. Roark's winning bid came in below that ask, and the reported structure shows exactly how a buyer and a founding family bridge a valuation disagreement without either side simply capitulating: the deal price without the earn-out was reported at $8.95 billion, with the full earn-out taking the total to approximately $9.55 billion, and for the full deal price to be paid, Subway's cash flow needed to reach specific milestones over a period of two or more years after closing.

That's a materially different risk allocation than a fixed-price deal. Roark pays a guaranteed floor price at closing regardless of what happens afterward, and only pays the incremental ~$600 million if Subway's post-acquisition cash flow actually clears specified thresholds, meaning the seller families retain real economic exposure to the business's performance for years after they've technically sold it, and Roark isn't paying full freight for growth it hasn't yet seen materialize.

Why earn-outs show up in founder-owned deals more than public-company deals

An earn-out is fundamentally a tool for resolving asymmetric information and valuation disagreement between a buyer and seller, and both of those conditions are far more common in a closely-held, family-run business than in a public company with years of audited, publicly disclosed financial history. Subway had been through a well-documented multi-year turnaround (positive same-store sales streaks, menu refreshes, remodels) but also carried a long history of unit closures and franchisee dissatisfaction that a buyer would reasonably want proof points on before paying full value.

An earn-out lets Roark de-risk the purchase price against exactly that uncertainty: pay a firm price reflecting the business as it stands today, and pay an additional, performance-contingent amount only if the turnaround narrative the sellers were pitching actually continues to play out in the post-close cash flow. This is structurally similar to a seller note or contingent value right seen occasionally in public biotech and pharma M&A (milestone payments tied to drug approvals, see our Pardes/Leerink breakdown), but it's far more common in private middle-market and lower-megadeal transactions where the seller's own management team, rather than public disclosure, is the primary source of forward-looking financial credibility.

The long signing-to-close gap is itself a structural signal

The roughly eight-month gap between the August 2023 announcement and the April 2024 closing is unusually long even by large-cap M&A standards, and it reflects the specific complexity of this particular target rather than financing risk (Roark, as a private equity buyer with committed capital, didn't face the kind of financing-market risk that can stretch out a strategic buyer's timeline). Subway's franchise structure, thousands of individual franchisee agreements, master franchise arrangements in various international markets, and a corporate structure built around decades of family ownership, creates a genuinely larger closing-conditions checklist than a typical single-entity operating business, and multi-jurisdictional antitrust and franchise-regulatory clearances across the 100+ countries where Subway operates add real time to the process independent of any dispute over price.

What happened after closing

Once the deal closed, the earn-out clock started running against a business that was still working through the back half of its turnaround. Subway's 2024 franchise disclosure document showed revenue rising 10.3% to $971.9 million in 2023, though the company also shut down over 400 U.S. restaurants that year and ended 2023 with 20,133 U.S. locations, its lowest total since 2005, following a broader pattern of roughly 7,000 net U.S. closures since 2015. That combination, rising same-store sales and revenue alongside continued net unit closures, is exactly the kind of mixed signal an earn-out is designed to let a buyer wait out before committing the full purchase price, rather than betting the entire valuation on which trend line wins out.

F&B/franchise-specific deal checklist this case illustrates

Private, founder-owned deals rarely have disclosed definitive terms, expect to work from reported figures via financial press rather than SEC filings, and treat exact dollar figures as directionally reliable rather than precisely confirmed. An earn-out gap between the "headline" and "guaranteed" price is a valuation-disagreement resolution tool, most common when the seller's forward growth story hasn't yet been proven out in a way a public-market buyer's own diligence can fully verify. A long signing-to-close window in a PE-backed private deal is more often a franchise/regulatory-complexity signal than a financing-risk signal, check the target's structure (franchisee count, international footprint) before assuming the gap reflects deal uncertainty. And track post-close performance against the earn-out thresholds, if disclosed or reportable, mixed signals (revenue growth alongside continued unit closures) are common in turnaround-stage franchise businesses and are exactly what an earn-out structure is designed to price correctly rather than guess at upfront.