A Fun QSR Chain or “Big Sandwich”?

As the small business financing space contemplates competition from merchant-integrated platforms like Square, Shopify, and Intuit, one behemoth is taking over the franchises themselves. The company is Roark Capital, an Atlanta-based PE firm with $37B in assets under management, and they taste delicious.

Roark Capital already owns Arby’s, Auntie Anne’s, Baskin-Robbins, Buffalo Wild Wings, Carvel, Cinnabon, Carl’s Jr., Hardees, Culver’s, Dunkin Donuts, Jamba, McAlister’s, Moe’s Southwest Grill, Schlotzky’s, Seattle’s Best Coffee, Jimmy John’s, SONIC, Jim’n Nick’s Bar-B-Q, Miller’s Ale House, North Italia, Nothing Bundt Cakes, and the Cheesecake Factory. Three of those are among the top fast-food sandwich chains in America (Arby’s, Jimmy John’s, and McAlister’s Deli). Roark is also presently in the process of acquiring Subway, the leading company in that category by nationwide sales. The deal was announced in August.

But now the FTC is saying not so fast on the basis that it might create a monopoly. According to Politico, “the government is focused in part on whether the addition of Subway gives Roark too much control of a lucrative segment of the fast food industry.”

“We don’t need another private equity deal that could lead to higher food prices for consumers,” railed Senator Elizabeth Warren on social media. “The FTC is right to investigate whether the purchase of Subway by the same firm that owns Jimmy Johns and McAlister’s Deli creates a sandwich shop monopoly.”

While many comments on social media made fun of this regulatory effort, perhaps such consolidation is a wakeup call for the small business finance industry. Once upon a time the textbook definition of a non-bank funding merchant was a restaurant or QSR sandwich shop. Although the target customer has broadened considerably since then, it may be worth keeping in mind that a large diversified portfolio of QSR funding customers might not be so diversified at all. Behind the scenes, it may actually all be a single counterparty. A small business might not be so small. You could be dealing with Big Sandwich.