Roark Capital's $9.6B Bid for Subway, DuPont Sells Resins Business, SentinelOne Explores Sale

Insights

Chart of the Week: The Technology sector witnessed a notable increase in buyout deals in North America, making up 38% of deals in Q2 2023, a jump from 14% in 2013. However, in terms of deal value, Technology ranked fourth, pulling in only $10 billion from buyout firms in Q2 2023. Meanwhile, Healthcare, Real Estate, and Industrials attracted the most buyout dollars. (Read More)

Recent Reports

• North America Private Equity Report: Q2 2023
• Private Equity Exits Report: Q2 2023
• Private Equity Buyouts Report: Q2 2023

Deal News

Roark Capital is finalizing a deal to acquire the Subway sandwich franchise for $9.6 billion. Subway is the eighth-largest restaurant chain in the US with sales of $9.8 billion across nearly 21,000 locations. The company is ripe for a turnaround after over-expansion, declining sales (which peaked in 2012), menu stagnation, and a general failure to innovate amid the rise of rival sandwich chains such as Jersey Mike’s and Jimmy John’s. CEO John Chidsey has been trying to revive Subway since 2019 by revamping its menu options, investing in new restaurant equipment, and expanding into China. Roark Capital has other quick-service restaurants in its portfolio including Arby’s and Baskin-Robbins. Although Roark has pulled away from other buyout firms in the bidding process, Subway’s board is reportedly still having open talks with Sycamore and TDR. Advent was also a bidder for the sandwich chain as of two months ago. (Source)

DuPont has agreed to sell an 80% stake in its Delrin resins unit to private equity firm TJC for a valuation of around $1.8 billion. TJC, formerly known as The Jordan Company, specializes in middle-market deals in the Industrial, Chemicals, and Healthcare sectors. Delrin, known for its high tensile strength and versatility in replacing metal parts, is utilized in diverse products, from gears to medical devices. Following the deal's conclusion, anticipated by year-end, DuPont is set to pocket approximately $1.25 billion in cash and a $350 million note. Additionally, they'll retain a 19.9% non-controlling interest in the unit. This move aligns with CEO Ed Breen's objective of enhancing DuPont's focus on its electronics and water solutions sectors while pivoting to industries like electric vehicles and clean energy. (Source)

Goldman Sachs faces potential significant write-downs from its 2021 acquisition of fintech lender GreenSky, as the firm aims to divest the business, with incoming bids falling short of expectations. Acquired for $2.24 billion under CEO David Solomon to boost Goldman's consumer finance division, GreenSky is now on the sales block due to challenges in Goldman's consumer sector. Major players, including KKR, Apollo Global Management, and Synchrony Bank, have participated in the initial bidding process that began in June. Bids for GreenSky's loan origination platform vary between $300 million to $500 million, which is substantially lower than Goldman's original purchase price. The bank’s move away from GreenSky and other consumer initiatives highlights a significant pivot from Solomon's earlier strategy to reshape Goldman as a fintech contender. (Source)

Cybersecurity firm SentinelOne Inc, valued at roughly $5 billion, is considering potential options, including a sale, after its stock plummeted by 80% over the past two years. The decrease came post the COVID-19 tech spending surge, with businesses cutting IT budgets as the economy slowed down. SentinelOne has engaged Qatalyst Partners for advisory on potential acquisition discussions, predominantly with private equity entities. However, initial interest has not matched SentinelOne's valuation aspirations, and there's a possibility of talks concluding without a deal. SentinelOne, which debuted on the U.S. stock market in 2021 at $8.9 billion, has grappled with profitability issues and recently had to adjust its annual recurring revenue valuation and anticipates laying off 5% of its staff. (Source)

Private equity firm TPG Capital has proposed buying a stake in Ernst & Young's (EY) consulting division, according to a letter reviewed by the Financial Times. This approach aligns with TPG's strategy to separate EY's consulting and audit segments. In the previous year, EY intended to bifurcate its audit and consulting services following regulatory apprehensions, but "Project Everest" was eventually shelved due to internal opposition. Additionally, EY's U.S. branch disclosed a workforce reduction plan, aiming to lay off 5% of its employees, impacting approximately 3,000 U.S. staff. (Source)

Industry News

The Securities and Exchange Commission (SEC) is poised to enact major modifications to regulations overseeing private-equity and hedge funds. Scheduled for a vote on August 23, these proposals have faced staunch opposition from industry players, with some hinting at potential legal actions against particular changes, notably the prohibition of "side letters" favoring specific investors. The suggested regulations also mandate annual audits for private funds and demand enhanced disclosure regarding costs and performance for investors, including pension plans and affluent individuals. SEC Chair Gary Gensler believes the alterations will bolster competition and shed light on a sector he claims amasses hundreds of billions in annual fees. (Wall Street Journal)

Private equity activity has been particularly robust in the lower middle market, with PE firms targeting founder-owned businesses primarily valued under $100 million. These businesses represented 61.5% of global M&A in the first quarter, up from 53.8% in Q4 2020. This uptick is attributed to a post-pandemic recovery, where many founder-owned firms, especially consumer-facing ones, are being sold after waiting out the worst of the pandemic. The impending retirement of baby boomer business owners further amplifies this trend. A UBS survey indicated that 21% of business owners, primarily those earning between $1 million and $10 million annually, are considering selling to PE firms. However, the actual percentage might be higher, as employees often team up with PE firms when they can't afford to purchase the businesses outright. From a PE perspective, founder-owned businesses are lucrative due to their minimal leverage and potential for value creation, especially as PE firms have been seeking ways to invest significant accumulated capital from 2021. (Institutional Investor)

Lion Capital, a UK-based private equity firm, will face trial in a U.S. court over allegations that it was part of a conspiracy to fix canned tuna prices through its ownership of Bumble Bee. Despite Lion Capital's argument that they had only engaged in "normal" investment activities and were not part of the conspiracy, U.S. District Judge Dana Sabraw ruled against them. This decision is the latest in a series of legal actions against Bumble Bee and other tuna companies, stemming from a 2015 U.S. Justice Department claim of a price-fixing conspiracy impacting over $600 million in tuna sales. In 2017, Bumble Bee pleaded guilty and agreed to a $25 million fine, while two executives also pleaded guilty and a third was convicted. Judge Sabraw criticized Lion Capital for turning "a blind eye to Bumble Bee's collusion." The private equity firm acquired Bumble Bee in 2010 for $980 million, only for Bumble Bee's assets to be sold in a 2019 bankruptcy. No trial date has been confirmed. (Reuters)

China, once a hub for Asia's rapidly expanding private markets, is now viewed with increased caution by regional investors, particularly in light of the latest US trade restrictions. President Biden's executive order banning investments in specific technology sectors exacerbates challenges for tech venture capitalists and affects private equity as well. Recent data from PitchBook indicates a noticeable decline in private equity fundraising in China, and government statistics show an 87% YoY drop in foreign direct investment in Q2. This dip isn't solely due to global economic downturns, as China's own restrictions and the tech industry crackdown play significant roles. Notably, the Ant Group's halted IPO affected major backers, and several US-based entities are reducing their China exposure. However, domestic investment is on the rise, with government industry guidance funds (IGFs) steering capital towards sectors aligned with China's industrial goals. Some investors are also tapping into opportunities in non-tech sectors, like luxury goods. Despite the challenges, China's massive economy can't be ignored, but investors are also eyeing lucrative possibilities in Southeast Asia and India. (Pitchbook)

Questions? Email us at news@valueaddpe.com