Within the past year, the carwash industry has seen multiples at their highest point historically. Whether you own a full-serve, in-bay automatic, self-serve, flex-serve or conveyor, there is a need in the market for every kind of carwash. There are several reasons why selling your carwash can be a good idea, even if you’re still determining if you want to get out of the business entirely. From retirement to changes in the industry landscape, many factors can make selling your carwash the right move for you.
As this industry grows exponentially, buyers continue to adapt to creative ways to incentivize and entice carwash owners to sell their businesses. There are several options for operators to exit, but maximizing value and knowing when is the right time to sell is essential. Selling also does not mean losing 100% of the business. Retaining some portion of ownership can be negotiated when selling, bringing a tremendous upside to the buyer and the seller.
Preparing to sell: how buyers evaluate carwashes
Carwash owners know that pricing the value of their business is more than just looking at the total revenue. A robust development pipeline and skilled management team add more value to a carwash than just car counts and ticket prices. When it comes time to sell your carwash, there are vital things that buyers will take into consideration when possibly acquiring it. Having a substantial number of memberships will be attractive when negotiating a higher purchase price.
The upside potential and year-over-year growth are two of the most significant factors buyers will examine. Both upside potential and year-over-year growth assist in predicting the trajectory of how much growth is left in your carwash. Understanding if your business has the infrastructure to support growth and the cost per car is relative for the potential buyer.
Building and running a successful business differs from knowing how to sell a business successfully. Profit margins are critical for buyers to examine because they assess the value of the business structure that is already in place. It is logical for buyers to want an already high profit margin carwash rather than acquiring something that they have to restructure.
In most cases, buyers tend to go straight to the bottom line. Since income multiples are used to determine value, your starting point should be appealing. Add-backs and adjustments to EBITDA on your profit and loss statement are crucial to review when preparing to sell your carwash. Hiring an experienced broker will make you more money in the final sale because of his or her experience with add-backs on profit and loss statements. Save yourself the headache.
Wash isn’t performing at its best?
Are you worried that your wash isn’t performing at its best? Jay De La Riva, senior vice president of acquisitions for Miracle Car Wash Advisors, says, “If your carwash is washing over 100,000 cars per year, there is an incredible opportunity to seize the current multiples of the market.”
If your carwash is washing under 100,000, do not be discouraged. If you are not on a time-sensitive schedule, bringing a carwash advisor on early to improve your operations and increase your bottom line is highly encouraged.
If you are on a time-sensitive schedule to sell, even if your carwash is low performing, you have something the buyers want. Your land is valuable. It is even more valuable if it has a good field
Buyers might consider acquiring your wash solely for the potential value that the land holds because of the zoning. In order to build a new carwash, buyers need to obtain a Special Use Permit, which can be a long headache-inducing process that sometimes takes years. In some cases, buyers might get rejected during this process, leading to a massive loss of time and money. Some cities have started to restrict these Special Use Permits and grant them less, making any carwash entitlements extremely valuable.
Grow before you sell: Greenfields are gold
There are a few reasons why it makes sense to grow your carwash portfolio beforeselling. Expanding your portfolio can give you more negotiating power when it comes time tosell and make all the difference in getting the best price for your carwash. An organic way to grow the sale of your business before you transact is to identify off-market locations in which the carwash is already allowed use by right, not requiring a Special Use Permit.
This preparation minimizes risk for the buyer looking to quickly get scale in a market to establish a membership base. A more extensive portfolio will command a higher selling price, and so will a rapidly growing portfolio. The growth of your portfolio can give you a competitive advantage over other operators in the market.
Operators on the fence about selling their carwashes should consider the value a greenfield development site would add to their portfolio. Greenfield development sites allow operators to expand their business, increase their customer base and generate additional revenue. Most brokers have a large map of approved use by right greenfield sites across the nation.
How will the market impact a carwash’s valuation?
Inflation, supply chain issues and rising interest rates continue to dominate mostdiscussions by carwash operators across the country as we face another global challenge that will create some unprecedented times. The industry has benefited greatly over the past two years from a low interest rate environment, along with a significant focus from private equity groups and institutional investors wanting to enter the industry quickly and in markets across the country. The excitement over attractive EBITDA margins and recurring revenue models has led to acquirers frequently paying top dollar for good businesses.
So, how do rising interest rates affect multiples on a potential sale? Experience tells us aninverse relationship exists between increasing interest rates and multiples paid for by leveraged buyers. Interest rate hikes affect investors because borrowing money becomes more expensive, and consumers and businesses become increasingly cautious with borrowed money. The interest rate on available financing could potentially exceed the returns that leveraged buyers can expect from a high priced carwash acquisition. Therefore, causing a need for the acquirer to lower the multiple to ensure the acquisition is cost effective, creating a potential price gap between sellers and buyers.
Despite increasing interest rates, acquisition activity continues as carwashes have historically proven resilient during difficult economic times. Good deals continue to happen because not all buyers are borrowing cash. Private equity groups and institutional investors have been sitting on a record amount of cash over the past few years and are still looking to deploy it. Finding a broker that understands the market landscape and has a consistent track record of helping clients achieve their exit goals will help you secure maximum profit for your sale and provide you with peace of mind along the way.
Thomas Coffman is the CEO and founder of Miracle Car Wash Advisors. He is an experienced Broker and Advisor on the national level, and his achievements are well-known within the carwash industry. Thomas specializes in providing M&A advisory and real estate brokerage services to a wide range of clients. He oversees the facilitation of client expansion, market research and development, site selection, and land evaluation. Thomas has completed more than $1 billion in lifetime carwash-related transactions and sold over 100 carwashes.