Episode 10: With Jeff Pavone and Matt DeWolf
About the Episode:
What does the car wash M&A space look like as we head toward the end of 2022? In this episode, we share Amplify Car Wash Advisors Partner Jeff Pavone’s recent interview with Matt DeWolf on CAR WASH The Podcast. Jeff and Matt discuss how the market has changed, what remains the same, and what predictions Jeff has for the future in the car wash industry. Be sure to listen in to hear Jeff’s tips about what car wash owners can do today to succeed in the current industry landscape.
For more from Matt DeWolf and CAR WASH The Podcast, you can subscribe wherever you like to listen, or you can download the CAR WASH Magazine app to keep up with industry news.
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More about Matt DeWolf:
Matt is the Chief Marketing Officer for the International Carwash Association and Editor-in-Chief of CAR WASH Magazine. With a passion for helping people tell better stories, he’s spent the last 15 years visiting car washes across the globe and telling the stories of the professional car wash industry. When he’s not visiting a wash or asking people more questions than they want to answer, he’s spending time with his three children and his wife Kacie. He also loves to play baseball, drink wine, and consume as much content as humanly possible. He currently serves as the Alumni Association Board President for Simpson College.
More about Jeff Pavone:
Jeff Pavone is a leading advisor to the car wash industry, successfully completing more than $5 billion in car wash-related transactions. A lifelong entrepreneur, Jeff is the owner of Commercial Plus, a real estate and business brokerage firm, and a partner at Amplify Car Wash Advisors, a mergers and acquisitions and capital advisory firm specializing exclusively in the car wash industry. Leveraging his longstanding relationships in both the car wash and investment banking industries, Jeff partnered with car wash veteran Bill Martin in early 2020 and launched Amplify Car Wash Advisors to address the evolving needs of car wash owners. Together, Jeff and Bill recognized the need for providing guidance tailored specifically to car wash owners when it comes to selling or scaling their business. Today, Amplify has completed complex transactions for some of the most well-known and widely respected car wash chains in the country and is the only group that bridges the gap between investment banking and car wash operations.
Check out the full transcript below:
Lanese
Hi, this is Lanese. Thank you guys so much for tuning in today for episode 10. We are sharing a rebroadcasting of Amplify Car Wash Advisors’ partner Jeff Pavone’s interview on CAR WASH, the Podcast brought to you by the International Car Wash Association. Jeff talked with Matt DeWolf, who’s the host of that show and also the editor in chief of Car Wash magazine. This is a great show that was so good. We wanted to include it on our show as well, because it just really hit home on a lot of the things that we’re talking about as far as the current state of the market, where the future is going for the car wash industry and addressing some specifics like what’s the future for private equity in this space? What’s the build versus buy debate for growth? It’s just a great conversation; I really think that you guys will like it. And again, we wanted to share it here with our listeners, because it was a good one. If you like more episodes of Car Wash the Podcast with Matt DeWolf, you can subscribe to his channel as well wherever you’d like to listen.
Lanese
And I also wanted to let you know that every month in addition to the episodes that we bring to you on our podcast channel to listen to, we also create an article that accompanies each episode. So about two weeks after the episode airs on our show, we create an article that’s posted to our news site. So it’s at amplifywash.com/news. And there you can see new information or expanded information from the show from the previous guest. And so that’s just something that you can be on the lookout for. Also on that news page of ours on our website, we share other articles that we have participated in on various car wash trade magazines and things like that, and other relevant M&A news in general. So it’s a good place to have a resource to find other news. Kudos to Matt! He’s such a great host, and just an awesome person to know in general. Hope you enjoy this episode. It’s actually one of my personal favorites from the year.
Intro
Welcome to CAR WASH The Podcast your source for real stories and real business insights from the experts both in and out of the car wash industry. So put it in neutral, feet off the brakes, and take your hands off the steering wheel. Here is your guide on this journey, CAR WASH magazine editor in chief, Matt DeWolf.
Matt
Hey everybody, welcome to this episode of CAR WASH The Podcast. This is the podcast that makes you a better car washer, and a slightly better human being. Friends, I am Matt DeWolf. I am editor in chief of CAR WASH magazine. And as always, I am your host on this adventure. Today, we’ve got a fun episode for you. We’re bringing back a guest who has been with us before. We don’t often do that, so this is a special day. We’re going to be talking a lot about what’s going on in the current M&A landscape here in the industry. Things have been changing; things have been moving, so to join me to talk about that and give us a little insight, we’ve got Jeff Pavone, partner at Amplify Car Wash Advisors and owner of Commercial Plus Group. Jeff, welcome.
Jeff
Welcome, Matt. Thank you for having me. I think timing is good. I mean, I appreciate you having us on a second time. And I think the current state of the car wash market probably needs an update.
Matt
Yeah, you know, I think the last time we spoke… So, if you all want more background on Jeff and how he got into this industry, it’s a fun story, but we’re not going to tell it today. That’s in Episode 193 of the podcast. It’s one of our most listened to episodes, fun fact for you. If you’re on the upside, it’s going to be under season two, episode 68 about growing or not growing. And we were talking a lot then about this concept of… Are car wash operators in the point then where they needed to be growing, or getting out of the business, right? We were kind of trying to see if… are there only two options? And I think then we were talking like, I don’t know, maybe we’re in the second inning or the third inning of this thing, and we think we’ve got a lot of runway left. But since then, things have changed. What do you what are you seeing now, Jeff?
Jeff
You know, first off, and I think Matt, we can call this Car Wash M&A 2.0. And it really comes down to looking at the… maybe some basic facts still. First off, the car wash as an industry is still one that is… that has got a lot of consumer demand. I think there’s still a lot of whitespace. You know, I think there’s… You know, we still keep building more car washes, and people get more car washes. Now, you know, so I think the future for building out car washes in general is going to be still a healthy place for the next few years. But I will tell you from the car wash M&A, there’s definitely a resetting of valuations happening in the marketplace. And it’s not mild; it’s aggressive.
Matt
That’s really interesting. You know, I think we’ve all kind of been watching and waiting and thinking this had to happen eventually. So it was really only a matter of time. I wonder, do you think it… Did it come a little faster than we maybe thought?
Jeff
You know… maybe I’m a little older than you. And I’ve watched every cycle that we’ve seen go up. And they don’t go down a little. Right? They tend… when we have market meltdowns, they happen fast. And they happen… they’re faster and bigger. And I mean, everybody would think it’s going down a little, little, little. And the fact of that matter is that interest rates have been going up for the last year. And I actually think the car wash M&A market was slower to adjust some of the valuations. They were still paying healthy multiples up until recently, right? So, you know, I actually think the market reacted a little slower than then maybe they could have. And we’re really, you know… The question really becomes, you know, you’ve got to ask yourself, were the last few years the norm? Or an anomaly? That everybody was… We had so much stimulus cash; we had a lot of money and dry powder in the marketplace. And I think maybe we’re getting back to what normal is in valuations. And before I think we just had this short period of time where everything was exceptional. And pricing was exceptional, too. But I think on a go forward basis, we’re just going to be normalizing where I think valuation should be.
Matt
Well, yeah, I want to come back to that because I think that’s super important. And there’s a lot of things to unpack around that, especially when it comes to what does that mean for some of these groups that have been growing so fast? And what do they need to do now? And what’s that all going to look like? But I want to get into… you were talking about how there’s still some really high deals going on, really great valuations. But maybe not since the last one you all brokered, which, in some ways, I’ve got to tell you, it breaks my heart a little bit, because I was wearing the sweatshirt, literally wearing the sweatshirt from that wash, when I saw the press release come out, and it’s like, Zips Enters Chicago Market with Jet Brite Acquisition. And for those who are listening and maybe don’t know Jet Brite, Jet Brite is Dave Dalesandro, a longtime industry veteran, one of the one of the most well known guys around… does a great job, runs an exceptional facility, gets a great car has a lot of really smart tips. And he sold. And so he was one of those guys I never thought it was going to sell, but he did. Can Can we talk about that deal a little bit, and just kind of how that maybe came about?
Jeff
So I’ve known Dave for a long time; I consider him a close friend. And I have the utmost respect for him, like you do. I mean, I think if you’re going to have an analogy, they’re like the Costco of car washing. They wash a lot of cars; they probably wash the best car in the country for the price of anybody. And they were doing a phenomenal job. You know, I think part it… the writing on the wall was that the market was going to be changing. You’ve got competitors. You know, they had a… they were the big dog in Chicago. You’ve got some private equity groups that are going to be entering the market. And I think they just felt, you know… One is maybe, you know, the timing is pretty good from a valuation standpoint. But they also… It was also… it took some convincing. They had to have the right partner and the right structure of a deal. And they’re in the car wash equipment manufacturing business. And so they’re going to put a lot of focus on development of car washes for their current partner, their new partner, and they’re also going to be expanding their car wash equipment company. So I think they’re, you know, part of it was obviously money. It’s got to be the right deal to feel good about it. But I also feel that they found the right partner that was going to to help them continue on with their car wash equipment company which is now becoming one of their real loves here.
Matt
Well, and yeah… their equipment super, super cool. I mean, it was kind of like a boutique, private label almost thing for a while, and you’d go, and you’d look at it, and it was really high end stuff, which sort of makes sense. That’s why he was able to produce such a great car. But, you know, I think it’s kind of interesting, because all of these things that Dave was doing, throughout the years, he was never doing it because he planned to sell. He was doing it because he was building a great business. He was being smart about how he was kind of protecting territory. He was… I tell you what, nobody was going to come in and build on top of a Jet Brite. Because before they did, Dave was going to do it himself. Right? He’s like, “No, you’re not coming in here. I want to make sure that I…”
Jeff
And it’s also, you know, Dave’s one of those sellers that, at the end of the day, if this deal happened or not happened, he’s okay. Right? And it was a very, very emotional deal for Dave and Sam, his partner, because this is, you know, for them, this is their life’s work. And even after the deal closed, there’s no celebration, there’s no like congratulate… Congratulations for what? It was a very emotional, difficult decision for them. I think ultimately they’re going to be pleased because they’ve got still a great… they’re still in the industry; they’re still going to do great things in the industry. So I think they’ll be just fine. But this wasn’t one of those really easy decisions, take the money and run. These are these are guys that love what they do. And so they’re doing it for the right reasons. And there’s still a lot of guys out there that are still stellar in this business today.
Matt
Okay, I’ve got to tell you, I’m still going to wear my Jet Brite hooded sweatshirt because it’s my favorite one, which leads me to… So, this is a completely unrelated question, but it’s something I’ve got to know because I’ve been thinking about it ever since this acquisition happened, and how I’m not going to be able to get any more great Jet Brite swag from them. So, Jeff, what’s your favorite piece of clothing? Like what’s your go to brand? I’ve got to know.
Jeff
Prada.
Matt
Prada? What? Really?
Jeff
I don’t know. Swag? I mean, I do have some on my own car washes, so Driven, I’d have to say, is our brand and, you know, I’d say Driven brand swag is probably something I would wear.
Matt
All right, like the quarter… You like a good quarter zip, or are you a hat kind of guy?
Jeff
Hoodie.
Matt
Hoodie? You got it.
Jeff
Hoodie. Yeah. Especially with my head. You know, I’m the first one to know if it rains and the first one when it snows. So a good hoodie comes in handy.
Matt
Yeah, for the for those listening, and maybe not watching, Jeff is what some might call follically challenged. So it just happens. We are all headed that way. Look, you can’t keep a head of hair forever. All right. So I want to kind of stay down this path talking about kind of how can operators set themselves up for success, especially in this new kind of landscape? Right. So we were talking about Jet Brite. Obviously, they did great things for a number of years, they were able to get a really good deal. In today’s market, if we’re saying that those kinds of really high multiples and those really big deals are maybe slowing down. What am I doing today, if I’m an operator, to kind of set myself up to still be able to maximize on what’s available?
Jeff
Here’s the great news about this, right? They’re still buying, right? There is a multiple of EBITDA, or your profit, call it. Focus on your operations. Generate more profit. I mean, so you know, what’s getting lost in all this is let’s say the multiples are going on from 15 to 12 or 10. Don’t buy in that Wall Street Journal 18 times because those deals aren’t happening anymore. But I would say generate more profit, you know? And so I find this question a great question because we know operators around the country. I’ve got operators that you can give me an operator A over here, and he can generate a million, a million and a half dollars of profit at a location. And then I’ve got operator B over here, and he can have the same site getting $500,000. And part of it is, you know, what’s getting lost in all this is you got a lot of guys that just were building and building and developing. And they really didn’t put together the infrastructure to operate and drive volume. And, you know, when you look at the great car wash companies, you know, my partner, Bill Martin with Metro, or you look at the Cobblestones, and Superstars and some of these other great companies, you know, they’ve all got the same thing in common. They’ve got an operating infrastructure that drives volume on their sites. And so if you can… if you really put your head down, operations could fix a lot of problems. But no longer, Matt, could you go in and think you can… You’ve got this situation today where it’s costing significantly more to build a car wash. So let’s say, you know, it went from 4 million to 5 million, now it’s probably closer to 6 million. You’ve got interest rates that used to be in the threes, now closer to six. That’s maybe $150,000 a year just more in debt. So all of a sudden, the marginal guy is never going to make it in this business anymore. The guys that got by, are going to be sitting here; they’re done. And so what I want to tell you is the single best way to maximize the value of your company is going to be drive more volume, you know, and your sites. And it’s so overlooked by so many groups out there.
Matt
Jeff, so something interesting that I’ve been kind of thinking about a lot is obviously you want to be profitable, and there’s lots of ways to go about that, but I think that what you’re talking about in terms of driving volume really gets to what I think people should focus on, which is, at the end of the day, you need to drive more revenue, right? You can cut corners, and you can become profitable by cutting expenses and kind of really trying to get as lean as possible. But at the end of the day, if you’re not really driving revenue, that profitably is not going to matter because eventually you’re going to get so lean that your product doesn’t really produce.
Jeff
That’s great. Yeah, absolutely, Matt. At the end of the day, what you’ve got to be looking at… We’ve seen other operators operate incredibly lean businesses, and they look at their margins and say, “We’re operating at a 60% profit margin.” But they’re generating I don’t know, 400,000 or 500,000 of EBITDA. That’s because at the end of the day, if you really are looking to drive memberships, what do you need? You need marketing; you need training. And so the smart guys will spend more money on operating costs, but they’ll generate more sales, and ultimately have a bigger bottom line. But it may not be a bigger margin than the next guy. But it will be a bigger net profit because they’re driving more sales. But to do that, you’ve got to make investment in your operating team and you know, all the all the great companies, Jet Brite included, I’ve got to tell you, they have one thing in common, every one of them. They care deeply about their team; they invest heavily in those people, and they do care about them. And so on an exit, they care about the culture and where their company is going.
Matt
So, okay, there’s a couple of things I want to talk about following that. One of the things I still want to come back to is this pace of reset, because as we’re talking about infrastructure and doing things, right, I think there’s a question there that I want to ask. But before I get into that I want to talk about… I want to kind of know… you’ve been in this industry for a very long time. And you’ve got great relationships. We were talking about how Dave is a very good friend of yours, and you respect him a ton. What’s it been like for you personally, to be able to kind of play the role that you’ve been playing as we kind of get into this space and to help people kind of do some of these deals and to see some of these opportunities that weren’t here 15, 20 years ago, even five years ago?
Jeff
Yeah. Great question. I mean, you know, we’ve represented… You know, I think just it’s a fact that we’ve done more car wash M&A this year than probably most guys combined in the space, and a lot of it is relationships. And I would say a good chunk of the deals we’ve done have come from folks that have been in this business from, you know, 20 to 50 years. I mean, we’ve sold some legacy companies in this business, and the emotional side of holding the hand of these owners has been at least one of our strengths. When Bill Martin and I first got into Amplify, you know, one of our missions was really is to protect the interests of the operator. You know, there’s nothing we want to force on them. It’s not one size fits all. We really try hard to match the right buyer or partner with the operator, because at the end of the day, you know, price is important to these guys, but I’ve got to tell you, culture is an awfully big part of it. And because we sort of have a little better feel today than most on what the end result is going to look like, you know, we really do want to at least advise and help these guys really understand what are they getting into; what’s it going to look like on the other side of a transaction. And that’s been a big part of what we do. Now, some people are building and just selling, and they don’t really care; they walk away and sail into the sunset. But I would say generally speaking, at least the clients that we’re dealing with, have a deep love of this business. They love what they do; they love their people, and they care deeply about their legacy, and what happens to it. So we’re pretty careful about at least guiding them through that process.
Jeff
Yeah, that’s got to be a tremendously rewarding thing. For you, knowing that these folks that you’ve built relationships with, you’re helping them both build and leave a legacy all at the same time.
Jeff
You know, for us, it’s really gratifying. You know, our business’s model is built around relationships. And I can tell you that we’ve done several billion dollars in transactions just in the last couple of years. And, you know, a lot of our business is generated from the clients we’ve already served. And what’s interesting is, in the majority of the people that we’ve done deals with, whoever the acquirer is, or the partner is, they end up hiring us to keep working for them. So for us, it’s really gratifying. You know, we never wanted to be the guys that are sort of a commodity kind of deal where we take a deal, we sell, and we’re gone. And like a typical investment bank is going to do a transaction and they’re gone. We really want it to stick with the client all the way through, even post exit, which makes our model a little bit different than most, and it is gratifying. But again, if you look at Bill Martin and his legacy, I don’t know of anybody that loves this space more than him. And you know, we, as a company, we take that in. It’s part of our culture that we care deeply about the outcome of of what happens.
Matt
I love that. I love that. I mean, that is really like tried and true core car wash industry, if we’re being honest. That’s what it’s always been all about, right?
Jeff
You know, it’s one of the… It’s funny, when you talk to a lot of people that come into this industry, even the private equity guys, a lot of other industries… they’re very protective of their, whatever they do, right? Whatever they do is their secret sauce. And this and that. The carwash industry as a whole is one of the most cooperative, friendly groups you’ll ever meet at all. And again, my friends are all car wash guys. Now, I mean, I go, I work with these guys, I travel with them. I go to games with these guys. They are very sharing, they’re very caring. This is a very, very unique industry of people that really do love each other, care about each other, hang out with each other way more than… It’s crazy. They’ve got… You know, they’re hunting turkeys. And they’re doing this and that. I mean, I don’t know too many industries that I’ve ever been associated with, that have that close comradery the way this space does. And so… But you have to you have to really embrace it and respect it. And, you know, unfortunately, over the last few years, because money has been so big and easy, you’ve got a lot of people that have come into space and don’t necessarily respect it. They look at this as fast money and fees and all this kind of stuff. And at least we feel, you know, we’re here to at least… we do want to protect the interests of those people that we do care about.
Matt
Yeah, absolutely. Absolutely. I want to come back to the question that I promised I would come back to. Alright, so we were talking about the great reset, right? We’re talking about whether that’s going to be what’s normal, and we’re just going to kind of get back into it that way. I’m curious to hear what you’ve kind of been saying because you all are very close to this right in terms of the number of groups that you’ve worked with and the number of transactions you’re seeing. I feel like I’ve been hearing from a lot of folks that have been growing gangbusters. They’re saying, “I cannot wait for it to slow down a little bit, for lots of reasons, but not the least of which is, I will finally be able to focus on my infrastructure and be able to make sure that I can run that really profitable and highly efficient process-driven business that I need to.” Does that resonate with you? Is that what you’re seeing, too?
Jeff
Well, I mean, yeah, by necessity now. I mean, so, you know, maybe we’ll just talk about all these headwinds and what’s going on.
Matt
Let’s do that.
Jeff
And so let’s start with what’s happening here. You know, first off, you’ve got high inflation, which has driven cost up between labor and chemistry and utilities and everything else. It’s just it’s definitely put some stress on operating margins. So they’ve got to operate smarter, right? So that’s a necessity. You’ve got 60% cost of debt up. So when you look at the guys, the consolidators, that have bought into the space, that have hundreds of millions of dollars of debt, their credit facility was done based on certain covenants, and all of a sudden, when you start adding in these increased interest rates, they’re under a tremendous amount of pressure from the credit markets to tighten up. And so, one of the the biggest concerns that’s going to drive all this is the credit markets are getting incredibly difficult and tighter. Before it was easy money. There was a lot of forgiveness, or looking the other way, and just lending with a blank check kind of mentality. Today, I’ve got to tell you, it’s gone. And so that’s going to drive a lot of how these guys make decisions. Today, it’s going to be that they’ve got covenants. These banks are going to be much more conservative on what they do. And so the news for some of the platforms that got out early and borrowed a lot of money, they’re going to have to focus, and quickly, on getting their numbers in line. And they may… You know, we’re hearing from most groups today, they’re all about greenfield. They’re all about building new car washes. Why? Because they’ve got to drive that multiple down. If they started up at call it at a 15 multiple. And now you look at Mister trading at below nine. So Mister’s in the 10 range of EBITDA. And all of a sudden, that rosy kind of exit strategy that everybody was looking at is gone. So these guys have got to now drive that… they’ve got to drive that multiple down. The platform has got to drive their multiple down, and they’re going to do it through building car washes. They can build at a six, instead of buying at a 12 or 15… you’re going to see a major shift in that environment. So, I think you’re going to see focus on operations, you’re going to see focus on greenfields from a lot of groups. Now, the groups that got in recently… here’s the really good news, Matt. There’s a lot of dry powder still out there. And the appetite for car washes is still big. And so I think you’re going to find that the buyers are still going to be looking at buying into this market, but they’re going to be buying in this probably at a much more, call it call it a normal pricing market instead of these kind of inflated valuations. And and they’re going to come in and buy, right. And so we’re going to see deals still happening. But I think it’s going to be at at a number… I think it’s going to be could be 25% or less or more lower than it might have been a year ago or six months ago. Because it just has to be. The other piece of it is you’ve got retail sales with looming recession coming, and so you’re already seeing evidence of retail sales on a car wash being hit. Is that 5%, 10%? But as credit has got an underwrite this stuff, you know, again, before that everything was bullish; they looked up. Today, they’re going to go in the other direction. They’re going to look at the costs going up; they’re going to look at retail sales potentially being hurt a little bit, and a little softer. And so you’ve got to make the numbers work.
Matt
Well, yeah. And some people might argue that that kind of normalization and then kind of reset in terms of what people should expect when they enter the carwash industry may give us back some of that essence of the folks who sort of started in this industry, right? Because people are getting into it for the right reasons. Not necessarily chasing a quick turn and a quick buck. Now, let’s be honest, people who started with car washes back in the day, they were still running a pretty high margin business. They were making money. It’s not like this was not ever profitable investment. But there was, you know… Obviously, there were things like variability of weather; there was a lot more labor back in the day. Now, a lot of that has been solved for with unlimited and the whole Express model explosion. But I want to shift gears into what you’re talking about with the recession. So we’re talking about greenfield. And folks, some of these platforms deciding that maybe I shouldn’t buy the washes because they’re way too expensive to do that; I’ve got to build more my own washers because it’s cheaper, and it makes more sense. At what point… What do you think? What do you think can slow that down? At what point did they maybe pause on that? Because, as you said, we’re seeing the headwinds, right? Inflation is has been an issue for a while; we’re starting to see the signs of maybe a recession looming. When do you think people say, okay, hold on, let’s put the brakes on. And then what do you do? What do you do then? Right? I feel like we kind of spread everything out all over the place. And it’s kind of going to feel a little bit like the housing bubble when it burst, and you had these places where you just had houses that just didn’t get finished. And I hope that’s not the case.
Jeff
Yeah, I don’t see that being the case at all. You know, we’re still seeing… It’s interesting. I met with a group today that has a fairly large portfolio of car washes. And their numbers were down fairly significantly. And I said to them, I go, “Drive your competition.” Here’s the reality is you’ve got a lot of guys building car washes, so you’ve got a lot more car washes, right? So all of a sudden, you’ve got more competition. And I go, “Drive your competition and tell me: You’re a customer, where would you go?” And the answer was not their own car washes! Because out of, let’s say, three competitors, they would be at the bottom. And I go, “You better start with your customer experience!” At the end of the day, number one reason where does somebody wash your car? It’s convenience, right? So the second thing is, if you’ve got two guys that are convenient, they’re going to go to the better car wash. And so I look at this as being one of those really great opportunities for great operators with great locations. They’re going to thrive. At the end of the day, the recession is not going to kill… I mean, washing a car for 20 bucks or 30 bucks a month Unlimited is still a bargain. We’re not going to see… We’ll see a dent; we are not going to see this business like getting battered like a lot of other ones. On the other hand, what’s going to start being a material effect on operators is going to be… By the way, everybody’s building car washes, right? So every major player if you go to down the line from Mister to Go, you name it, Mammoth, you know… Everybody’s talking about greenfields and building. Well, at some point, you’re going to have a lot of competition with new car washes. The guys that are going to survive are going to be the ones that give the best customer experience. And I would tell you so that’s where when you look at the — forget the platforms and the private equity-backed platforms — but you look at the owner operator, I don’t think Crew Car Wash needs to worry anytime soon. I don’t think Metro has to worry anytime soon. You know, we’re watching that the great operators in a market… I don’t care who it is, they can come into it. As long as they treat their… as long as they continue to serve their customers well, they’re going to be just fine to weather the storm, and they’ll actually prosper because they’ll be able to grow and expand. And so I don’t think that’s a problem. On the other hand, the marginal operators are going to have a real problem unless they figure out how they need to keep their customers from moving on.
Matt
Yeah, it’s a little bit of a shift from our conversation from last time where we were talking about, you should either be growing or you should be exiting. And maybe the tagline here is that you should either be exiting, if you’re not doing very well and you’re not willing to put in the work, or you should be really hyper focused on making your wash operations the best they can possibly be with a renewed focus on customers.
Jeff
You know, driving memberships… If you’ve got, at the end of the day, some of these businesses never focused on memberships. They’re going to have problems! The groups that have, you know, 5, 6, 7,000 members at a location, maybe they churn a little bit more, but that goes down to, you know, execution on handling… how do you handle the churn of your memberships. We’ve got some great data from Retention Express, and watching what their ROI is, because you’ve got to pay attention. You can no longer let that customer go into a phone box and not deal with them. Because when you’ve got difficult times, customers do have a choice where to spend their money. And unless you’re stepping up, and really, this is a time that you’ve got to make sure that everything you do is your A game. And so paying attention to those people is critical today, way more critical than it was when money was just flowing.
Matt
Yeah, I really… I mean, I think that this is all really good news for the professional car wash industry. The level of wash operations that I’ve seen in just the last handful of years as I’ve visited washes, is so much greater, so much better, and so much more focused on the end user than it was when I first started doing this in 2007 / 2008. Right? It is a different ballgame out there. And I love that. Because what like washes today are beautiful, and they’re customer centric. And they really make people feel good about getting their car washed, and I think we’re finally figuring that out. I’m really excited about that.
Jeff
Yeah, I think that’s right. I mean, I think competition will drive a better customer experience. At the end of the day, that’s what you need. If you have no competition, you can continue to serve the client in any way you want. And they don’t know any better. Today they know better. And so, you know, I agree with you. I actually think a little bit of a reset isn’t all bad. It does slow down the fury of the pace of “I’ve got to do something now” anxiety. But I do think that everybody out there should just… they’re going to have to realize that if they’re in this business today, they’re going to be in for the long haul. If they do decide they want to exit. The good news is there are still good valuations being paid for good companies. So there are still buyers out there. So the buyers haven’t gone away here; I’m getting calls on a weekly basis from groups that want to get in and buy car washes. So we’re still finding a lot of buyers. They’re just being more selective. They’re making sure that their diligence is a lot tighter. But they’re still buying, and I think good operators will have good exits, but the guys that want to stay in? It all goes back to just doing all the all the things you need to do, making sure you protect your markets by having a good product.
Matt
Yeah, absolutely. Well, Jeff, I’m going to ask you two more questions here. And then I’m going to let you get back to your day. But first things first, I want you to put on your Prada hoodie here, and look into your crystal ball, and tell me what do you think the future is like? What are we looking at here in the next maybe 12 to 18 months in the industry?
Jeff
So from everything I’m hearing from most of the big groups out there, we’re going to see a lot of car washes being built. I mean, with the slowing down of the economy, the path to getting retail sites might be a little easier. So I think there’s still… There’s still so much bullish on the industry as a whole. I think we’re going to see a lot more car washes being built. The emphasis is going to be on greenfields and development. I think that happens. You know, I do think you’re going to see more technologies and improvements on operations. And I still think there’s a long way to go to really driving efficiencies and knowing who your customers are. You’ll see some AI and some other technologies coming into the car washes so we get to know our customers better. And I think labor is going to get easier. Labor has been a really painful, tough piece of this business over the last couple of years. I think the softening up for the economy is going to lend itself to us being able to maybe bring in some better employees and keeping them because they need to work. So like you said, Matt, I think there’s some things to look really forward to in the industry. Do I think it’s different? Sure. I think before it was fool’s gold almost, right? Everything was pretty and shiny. And it was great. I think today, it’s down to we’ve got to go back to what we normally have to do all the time. We have to work for it! And if you’re willing to work for it, it’s a great business to be in, and if you’re not, I would say: get out. Or if somebody’s… The other thought is that if somebody’s thinking that at some point, they’re getting up there in age, and they need to get out of this business, I wouldn’t wait another year or two. Because the reality is… A couple people have said to me, “Well, we’ll wait until interest rates to come down.” It’s not going to happen anytime soon! The bottom line is what we were living in before was not normal; what we’re living in today might be more normal, more the norm. And so I think with more increases in interest rates projected, that’s going to drive multiples down. So I do think the people that are looking at in the near future of saying, “I want an exit,” I would say the sooner, the better, because I don’t think it gets better next year. You know, because… You look at it, and it may be a few years before things change. I think they’ve got to learn to live with what they’re given, and focus on the operations going forward if they’re going to stay in this business.
Matt
How long do you think it’s going to be before we start seeing… I’m going to call these like Mega deals, right? How long before you think some of these big platforms start purchasing other big platforms?
Jeff
So a lot of has been in play behind the scenes. And the reason you haven’t seen a lot of them is because a lot of them have fallen apart? So it has been… It’s not been a lack of effort. It’s…. As a lot of these groups have built these chains based on a certain multiple. And now you look at what Mister is trading, and these other exits, the pricing of these things, the math doesn’t work anymore. Now, with that said, I do think we’ll see, over the next year, we’ll see it two or three mega deals, because you just have to. At the end of the day, there’s going to be the need of economies of scale. And some of these groups will have no choice because some of the credit for some of these groups may not be there, and they’ll have to do something. The good news is that there’s plenty of dry powder out there to make things happen. But it’s but it is making the math work. But it has not been lack of effort recently. I do think there’s going to have to be some… a little bit of a period in between here. But I think over the next year, we’ll see at least a couple of these deals get done.
Matt
Interesting. That’s when we’re going to really see things start to, you know… it’s the proverbial snowball rolling down the hill, right? Once you start to see some of that stuff happened, it’ll be really fascinating to see how everything starts to move and shift and momentum build on that. Last question for you, Jeff. And this one is maybe easy, maybe difficult, but I like to ask everybody this one. What’s the one thing that I can do today to be better tomorrow? And you can take this any way you want it. It can be car wash related, it can be personal, go buy yourself a great sweatshirt, anything you want.
Jeff
So at least me personally… It’s been a phenomenal few years made a lot of money. I can tell you, buying material possessions has probably given me less reward than I thought. And we’ve, as a company, as a firm, Amplify, and I’m helping to drive it. We’ve seen a lot of people that need our help. And I would say is an industry, we’ve got a lot of lot of folks that made a lot of money. I’d say, at least for me personally, it’s focusing on the giving side, and I’ve committed 20% of my personal time starting next year. We’ve gotten behind Boys and Girls Club recently a lot because of their needs… the needs of the community are going up dramatically. We look at the food kitchens now; the demand they’ve got us is under a lot of pressure. St. Jude is another famous, great organization we got behind. So I can only tell you that we’ve been blessed as an industry. I’d love to see… I think giving back as best as we can. Because at the end of the day, you can’t take it with you. So I would say look in the mirror, but I do think it brings great rewards and satisfaction well beyond anything you can buy for yourself.
Matt
Yeah, I love that. I love that idea. Because guess what? If you have not given back to an organization and if you have not made any kind of considerable investment in something that is just for the greater good, you have no idea how rewarding it actually is for you. So there are selfish reasons to do it to beyond the fact that it’s the right thing to do, to give back and to help humanity, right? But it is super rewarding and super gratifying. Jeff, we’re going to have to have you on… It’s almost like I feel like I should mark your predictions like on the calendar and say, okay, Jeff’s coming back in 12 months, and we’re going to see what was right and what was wrong. But I’m looking forward to seeing what’s going on in the industry here the next six to 12 to 18 months, and we’ll be sure to make sure that this was not your last appearance on the show.
Jeff
Matt, I appreciate it. And I look forward to it. I do think it’s going to be an interesting ride. Again, I actually just think everybody’s got to look in the mirror and say, what we’ve gone through has been just exceptional. We’ve been blessed. We’ve had a good run of just really just fun times. I just think this is… what we’re going to head into is probably more normal. We’ve just got to do what we always done as car washers, and we’ve got to put our head down and go to work, and do the right thing for our customers. And it’s still a great business.
Matt
Excellent, excellent. Well, if you guys listening wants to hear more great stories about how phenomenal this industry really is, make sure you’re subscribed to get this podcast wherever you’re listening to your podcast content. The easiest way for you to never miss an episode and never miss any of our great content is download the CAR WASH magazine app in your app store of choice. Friends, until next time, there’s just one thing that you have to do when you’re out there, focusing on that customer experience, or maybe wearing your favorite hooded sweatshirt, and that is keep it clean.
Lanese
Thank you so much for listening to Episode 10 where we shared this rebroadcast of Jeff’s interview with Matt DeWolf. I also wanted to let our listeners know that episode 11 will look back over 2022 and the car wash M&A market, and we’ll feature some highlighted clips from our guests. And yikes, a lot has changed since the bright and shiny golden beginning of ’22. So it should be interesting to look back and kind of see how the year has progressed on and some of the consistencies and some of the things have changed from the feedback and the messaging from both our side and also from our guests. Be sure to look out for that. Thanks so much for joining us, and we look forward to seeing you next time. Bye.
