Carwash M&A Heats Up

Why is the carwash market so hot, and will it last?
By Jeff Pavone

The carwash industry has been one of the hottest markets for mergers and acquisitions (M&A) activity in recent years, which has been largely driven by the emergence of strategic and financial buyers and the quest for consolidation. Today, we have approximately 20 strategic and financial buyers that are active in this market and at least that many trying to get into the carwash space. In recent months alone, there have been several notable transactions, such as Atlantic Street Capital buying into Zips Car Wash and Driven Brands acquiring International Car Wash Group. The question many people are asking now is: How long can this last?

While there are several threats that can potentially slow down the trajectory of activity in the carwash M&A market, we believe that the growth we have seen over the past five years will pale in comparison to what we will see over the next three to five years. The remainder of this article will examine why.

The industry continues to evolve
For decades, the industry has been dominated by “mom and pop” operators, but that’s changing fast. The emergence of financial buyers, including private equity firms and family offices, has institutionalized the way in which carwashes operate. With so much pent-up demand in private markets, there is a tremendous amount of capital sitting on the sidelines.

The lack of quality opportunities, which has intensified in the post-COVID environment, has had a slowing effect on deal flow. As a result, financial buyers have found themselves with a lot of dry powder and the need to put money to work.

The carwash industry has evolved in recent years, with recurring revenue models via memberships offering greater stability in cash flows, making for an even more attractive investment opportunity. A growing pool of financial buyers and attractive industry characteristics will continue to be a significant driver of growth.

Start your engines
The race is on to build new and establish regional brands.

Valuation multiples are currently trading at double digits (on EBITDA), and as a result, chains are now aggressively developing new sites. The logic here is simple: If you have to pay a multiple of 10-times to buy an established site but can build a new site at a multiple of five-times, the economics are far more favorable to build versus buy.

In addition, the trend to grow and establish a regional brand continues to shape the carwash industry. Multi-site operators are quickly recognizing the importance of a strong regional brand, not just for the purposes of achieving scale in operations but for the positive impact it has on customers when delivering the same experience at any location. With so many untapped markets in an industry that is still very much fragmented, there are ample opportunities to develop major market brands and quickly become a top player in the region.

While these dynamics will continue to fuel the growth of the industry as a whole, they can also make smaller operators more motivated to sell. Small operators may have a great site today, but if a new entrant penetrates the local market and develops new, the value of the established site may quickly erode. The threat of growing regional players penetrating markets via new developments can feed the already robust pipeline of acquisition targets.

What can stop this?
The obvious near-term risk is COVID. A new problem we are seeing during the COVID-19 pandemic is credit. Financial institutions are slowing lending to fund loan loss provisions in the anticipation of defaults. Because of this, credit is getting much tighter for individual operators, which may slow down growth plans and ultimately allow the larger, more well-funded national players to expand. The political landscape can also prohibit the full realization of the industry’s growth potential. Changes in tax law and evolving sentiment can put a significant handcuff on transactional activity in the carwash industry.

The good news …
The good news is that this is still a great time to sell, despite increased competition and the emergence of exogenous risks. We are seeing some extraordinary deals being done in this space, but it is critical to go into these discussions prepared. If you do want to sell, get multiple bids, because not all offers are the same.

For example, if you have recently built a wash or are in the process of building new locations, how will the buyer treat that value? This is where it pays to seek the help of a professional advisor.

In a recent case study, we found a chain that was in the process of signing a letter of intent to sell for $40 million. However, the deal fell through at the last minute. The seller went back to market using an advisor-led, competitive process and was able to increase the price of the sale by $4 million. This example proves that it pays to know your value.


Jeff Pavone is the founding partner of Amplify Car Wash Advisors and Commercial Plus, a market leader at the forefront of M &A advisory, real estate brokerage and financing for the carwash industry, successfully completing more than $5 billion in carwash-related transactions over the last decade. Recently, Jeff partnered with car wash veteran Bill Martin to launch Amplify Car Wash Advisors, addressing the evolving needs of car wash owners.

Jet Brite Car Wash

With decades of hands-on experience as operators, when it came time to sell our car wash business who we sold to was important to Sam and me. Chris [Jenks] and the team at Amplify listened to us throughout the entire process. They found the right buyer in ZIPS who would be a good steward of the brand and helped find the best path forward for us where we can continue pursuing our passion for manufacturing high-quality car wash equipment.  

Jet Brite Car Wash  
Dave Delesandro  | Founder

Ducky’s Express

I have been a multi-site developer and operator in the car wash industry for over 30 years. Four years ago, a partner’s health concern forced me to sell a portion of my portfolio, and during that process, I was introduced to Jeff Pavone of Commercial Plus. I was immediately impressed with Jeff’s knowledge of my industry and his volume of successful deal closings. In a very short period of time, Jeff found the right buyer at a very fair price, and the transaction closed shortly thereafter. I was looking for a team with honesty, integrity, and a proven track record of success, and I found all of that in Jeff.

Ducky’s Express
Richard Miller

Trademark Car Wash

These are some of the most exciting times for car wash owners. As we grew 350% in revenue in just one year, we recognized the time to partner up with a top-tier team that has mastered growth in retail and specifically the automotive industry. Amplify Car Wash Advisors had helped us acquire, raise capital, and was the perfect partner to help us reach this next chapter of the Trademark story.

Trademark Car Wash
Andrew Goldberger

Quick N’ Clean

My relationship with Commercial Plus over the past 20 years has been a very professional and trustworthy relationship. The feel of trust is very important in this business, and Jeff Pavone and his staff have exhibited a level of trust that makes me continue to feel that they have my best interest front of mind. I deal with many brokers across the nation, and my best experiences and results have been achieved with Commercial Plus representation.

Quick N’ Clean
Richard Karle | Owner

Zips

It’s been a great experience working with Amplify Car Wash Advisors to bring these sites into the ZIPS portfolio. We look forward to serving Dallas area customers with an enhanced car wash experience unique to ZIPS, with the added benefit of our extensive network of stores. This year we have continued our aggressive growth track with the goal to truly shine in our efforts to be the best express car wash provider in the industry and it’s acquisitions like this that help us reach our goals.

Zips
Gene Dinkens | CEO

ModWash

It was truly a pleasure to work with the Amplify team on our most recent acquisition of three additional operating locations in our home state of Tennessee. Their team provided great support and ensured a timely and seamless closing process, and we are excited for the additional growth opportunities this relationship will produce in our near future. We know this is the first of many transactions we will successfully complete with the Amplify team as we grow from our current operating store count of 23 to well over 200 locations across 14 states in the next two years.

ModWash
Brian Thornton | COO

Busy Bee Car Wash

For years I’ve talked to a lot of brokers with the same goal; sell your car wash chain as quickly as possible. But I chose to work with Amplify because they were interested and invested in the emotional side of selling my business and truly value long-term relationships. They weren’t forcing me to take a deal just to take a deal. They listened to my concerns and goals then educated me on all my options. And that’s how I decided on the right partner for my chain specifically. I went to bed at night after I signed the papers knowing I got the best deal possible versus just having any deal put in front of me that is only about money.

Busy Bee Car Wash
Jim Mulholland | Owner

Q Car Wash

We really appreciate Jeff and his entire team at Amplify. Their expertise and deep industry knowledge helped us navigate our options and best showcase our strengths to maximize our value. Caliber is a good fit for Q Car Wash as they look to expand in North Texas.

Q Car Wash
Viran Nana | COO

Cobblestone Auto Spa

I have known both Jeff and Bill for over thirty years combined, and respect them both as experts in our professional car washing industry. Their unique and individual strengths bring very strong talent and advice to operators, sellers, and buyers with sharp knowledge, client’s best interest in mind, and an actual personal touch. They hold the expertise and performance track record to hold a very high level of respect within this rapidly-changing car wash industry.

Cobblestone Auto Spa
Tuck Bettin | CEO

Oasis Car Wash

Turning over a business you started from one shovel of dirt 25 years ago and grew to several locations is a difficult and even uncomfortable process. So, when it came time for Larry and me to sell, we chose Amplify Car Wash Advisors to guide us through the process because of their strong reputation and thought leadership in the industry. Their team was professional and did a great job walking us through each step.

Oasis Car Wash
Dallas Hawkins | Partner

Busy Bee Car Wash

Selling our business after 52 years is big deal and certainly not a decision I took lightly, turning over our family legacy was an emotional process and I appreciated that the team at Amplify respected that. They helped me understand my options and found the best deal for me.

Busy Bee Car Wash
Jim Mulholland | Owner