Car Wash M&A, The Podcast Episode 12 News Overview
What actions can car wash owners take today to help navigate current conditions and to encourage future success? Guest Paul Sigfusson, a recent addition to the Amplify team, joined host Lanese Barnett on episode 12 of Car Wash M&A, The Podcast to share insights and tips from an investment perspective.
Paul and Lanese talked about how current economic conditions impact opportunities to partner with capital providers to grow, and they share strategies car wash owners are putting into action to best position themselves for long-term success.
THE RETURN ON INVESTMENT AMID CURRENT CONDITIONS
As we all know, the car wash market is changing amid current headwinds, and deals that were once quick and easy now require more due diligence, and the process can take longer. However, that is not all bad news for car wash owners. Paul shares, “As you think about the translation into cost of capital and the impact of making a return, you used to get paid back for making an investment in the car wash space in two to three years, under some normalized scenarios, and they can vary greatly.
“But if you include a 50% to 100% increase in cost of interest rates of financing that car wash, as well as continuing to double down the operations, that cost of capital and that return on investment is getting close to double where it was 12 months ago.
“And so, what that’s going to force in this industry — and I think it’s a healthy thing, again, back to this period of normalization — that’s going to force investors as well as operators to make sure they’re thinking twice about capital deployment. Is this a productive form of capital deployment in the space? These are capital intensive units. And I think that’s a very healthy part of the industry.
“It won’t be growth for the sake of growth.”
As Paul observes, growth in today’s market is more strategic and more goal-oriented, and that can be a benefit to individual car wash owners and also to the industry on a broader scale.
THE UPSIDE TO THE CURRENT ENVIRONMENT
Although the current climate presents some challenges to car wash owners, there are benefits as well. This is an excellent time for strong operators to distinguish themselves from competitors by building up a strong foundation and by offering an outstanding customer value proposition.
Paul states, “In terms of scenario planning, and starting to think about the future, it’s always been difficult in a rising tide environment. In the environment where everybody’s being lifted by low interest rates, the conditions are pretty benign, and it’s very difficult to differentiate your brand in that environment.
“And I think about the conditions in a more uncertain conditions setting as an opportunity to double down on yourself, your operations, your people, and how to go out-execute for the consumer, at the expense of your competition. All those things will add up into helping prepare operators for the uncertainty that is in front of us, which no one can really sort of paint out in a clear picture.”
COMPARISON TO OTHER INDUSTRIES
Despite consumers tightening their wallets amid inflation and other economic disturbances, car washes continue to show value to consumers. The express car wash model is proving to be very resilient, and membership plans have strengthened the industry against fluctuations in weather and season.
As Paul states in the episode, the car wash industry “continues to be a place where consumers enjoy; it’s a consumer service that puts a smile on somebody’s face. You hear a lot of operators talk about that. I love hearing that. And ultimately, it provides a consumer convenience and value proposition that is really interesting and really, really valuable to somebody over time.”
LONGTERM GROWTH FOR CAR WASH OWNERS
When considering the capital options that car wash owners have to help them fund and fuel growth, Paul shares, “There is plenty of direct lending debt capital. There are creative minority equity partners; there is still a functioning real estate market. All of these still exist today, and they are continuing to build support and continuing to have more and more interest.
“In this market, and in a more challenging, more uncertain times, it takes more creativity between the operator and the financing partner to come up with the appropriate solution that’s right for that operator. But there is plenty of capital out there for people to find solutions for growth. And I think people should be excited about the growing interest in this space.”
Stay tuned the last Thursday of each month to hear the latest thoughts from podcast guests.
For more tips from Paul Sigfusson, check out the full episode of Car Wash M&A, The Podcast.
Want to dive deeper into car wash M&A information? View all Car Wash M&A, The Podcast episodes here: https://amplifywash.com/podcast
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