Welcome to Sunday Bites, folks.

We’re back to our regularly scheduled programming covering 1-2 issues and breaking them down to help you level up your work banter for the week.

Notes

The last few issues have all been reader requests. So if you have any topic you want to cover, reply to this email and we’ll put it on the list.

Here’s the run-down for this week:

It’s a lot of dough: Subway gets acquired

Subway has been acquired by Roark capital partners for $9.6B. Another family business surrendering to the smooth masseuse-like hands of private equity.

• Why does the deal make sense? Subway really turned it around with a fresh brand turnaround and a new menu, resulting in 10 straight quarter of sales growth

• Why Subway? Roark knows fast food and gets to diversify into health/wellness AND capitalize on Subway’s brand re-positioning. The PE group thinks we haven’t seen the financial ceiling on Subway yet.

Analysis Title:

This is a classic match made in business heaven: Private equity company with deep domain experience finds a chain of restaurants with a sizable upside.

Fun fact: This acquisition is one of the largest we’ve ever seen in fast food. The largest? Inspire Brands buying Dunkin’ for ~11B in 2020.

What you might see at Subway after this acquisition

TL;DR - Smaller menu, lower prices, less people working, a lot more testing product testing with existing ingredients (salads, calzones maybe).

If you ever went to Olive Garden or PF Chang’s in the last 10-15 years, and remembered the wide selections, extended table service, then went BACK to one of these restaurants in the last 5 years and thought ‘what the hell happened’, then that restaurant eventually became a private equity restaurant.

It’s standard practice for groups to come in and strip down everything to drive the highest profit margin. Sometimes, that’s paring down the menu to the greatest hits, or putting pay machines on the table for quicker turnover.

Check this presentation laid out by Starboard capital in 2014 tearing Darden restaurant group’s business model apart.

Chips Ahoy? The uphill climb to building chips in the U.S.

The Taiwan Semiconductor Manufacturing Co. (TSMC) is building 2 semiconductor factories in Arizona.

It’s catching some crap from manufacturing unions around bringing in Taiwanese semiconductor staff stateside into an already massively delayed project.

Here’s a refresher on the project:

• It’s the flagship project of the CHIPs act. It’s being treated as a success gauge.

• The point of these factories is to reduce foreign dependence on semiconductors and bolster domestic manufacturing

• The 800lb problem? Lack of skilled workers. The U.S. doesn’t build semiconductors, so there’s a huge gap in domain knowledge.

How to fake deep tech knowledge on the groupchat

We’ve already seen years’ worth of delays and this is just the start of many upcoming problems. Aside from the finding the talent, there’s also nurturing the talent. TSMC is known for its harsh and high performing culture. High volume of hours worked is a feature, not a bug in most cases. It’ll be interesting to see if semiconductor production would become economically viable without subsidies. It’s also the first time we’ll see a U.S. workforce dip its toes into meeting demand for smartphones etc.

The real winner in all of this? Apple. The company committed to buying chips for its smartphones directly from TSMC’s U.S. plant. It’s getting all of the positive press for ‘buying American’ but none of the headaches that TSMC is facing in startup these factories.

Fun speculation: Apple is in the middle of a years-long move to diversify its supply chain. With commitments to buy American semiconductors, we could see some iPhone assembly moving to the U.S. in the coming years as a result.

Again, none of this is investment advice.

What AI made this week

Have a great week!

Ahmed and Peter