As the car wash industry continues to consolidate, and as shiny new washes come online, many current owners are thinking more aggressively about their future growth plans as well as investing money back into existing sites to keep pace with the competition. But where does the money come from?
Episode 7 of Car Wash M&A, The Podcast explores options car wash owners have for funding growth and capital improvements with the guidance of a seasoned investment banker.
When looking at ways to facilitate growth, taking on a financial partner like a private equity group can have many benefits, but it’s not the right fit for all owners. If maintaining full operating control and the existing company culture of your business is important to you, there are other ways to grow.
Sourcing financing through non-dilutive debt, be it from a bank, finance company, or an institutional REIT in a sale-leaseback, has its advantages. Without an exchange of equity interest, there is no change in ownership or operating control, which opens other attractive options for owners looking to stay in the game and scale or make capital improvement investments. It can also be more cost-effective, especially on an after-tax basis, versus equity, which can be much more expensive.
In addition to traditional growth models, raising capital to invest in equipment upgrades and other improvements like technological advancements can certainly pay off. While historically tech advancements in the car wash space have lagged as compared to other similar service industries, that is changing. Earlier this year Amplify Car Wash Advisors launched a new vertical within the firm, Amplify Ventures, with a mission to help owners maximize their business value by supporting the development of tools and helpful technology to streamline operations, establish systems, and poise themselves for scalability.
As Bill Koenig shares in the episode, it can be powerful to “leverage capital to deploy back into the business, to enhance the operation, enhance the equipment, enhance the technology that’s in use to drive efficiencies, all those things that will help make the business more competitive, and ultimately more attractive to customers.” Making investments in the business that drive future free cash flow will enhance the value of the business, both now and in the future.
There are distinct advantages of hiring a professional advisor to represent you when it comes to raising capital. For one, the person (or group) on the other side of the table likely has more experience at this than you do and will push for the most favorable terms and conditions to their benefit, not yours. So, it’s in your best interest to have a representative who will advocate on your behalf, who knows which terms are customary for transactions of the same type and nature as yours, and who can create competitive tension amongst capital providers to get you the best price and terms.
Lenders are looking at your liquidity, solvency, and how to mitigate risk, and an investment banker can help you address those factors and advise on the best way to structure credit facilities. Equally important, a good investment banker knows who to call within banks or non-traditional lending sources that understand car wash lending, and that can help get you a favorable response to your request.
“There’s a lot of work that goes into this, too,” shares Bill. “Banks don’t just want to see financials; they want to see projections, they want to see management team bios, they want to see subscription trends, they want to see churn trends. It’s not the same level of due diligence that a private equity buyer or a strategic buyer would look at in a full-blown sale, but there’s still a fair degree of due diligence that they dive into. And we can help pull all that together, put it in a nice clean package that we can then share with 20 or 30 lenders and create that competitive tension, that dynamic, that’s going to get our clients the best price in terms.”
As you consider ways to grow and optimize your car wash business, knowing where the industry is headed in the future can help with your decision-making today.
Bill predicts, “the technology overlay is going to be tremendous. Virtually every financial buyer we’ve talked to talks about the lack of technological innovation, artificial intelligence, and other electronic digitization methods that have not been overlaid over the industry or used to leverage efficiencies in the industry. That technology overlay is definitely going to continue through the end of the year and into 2023.”
Additionally, the availability of financing and the appetite from creditors to continue to lend into the industry continues to evolve. According to Bill, “A lot of people were concerned about an economic slowdown and how that may affect the M&A activity in the car wash space. And frankly, I haven’t seen that yet. There still seems to be a tremendous amount of interest to consolidate in the industry from both financial and strategic buyers. That doesn’t appear to be slowing down at all.” In short, financial institutions, lenders, etc. have to put their money somewhere and the car wash space remains an attractive place.
Want to dive deeper into car wash M&A information? View all Car Wash M&A, The Podcast episodes here: http://amplifywash.com/podcast