Car washing is big business and private equity is going after it – Mish Talk

With more and more people signing up for monthly deals, car washing is a big money-making operation.

The Wall Street Journal reports that Private Equity wants to wash your car

The car wash industry has become a hotbed of private equity activity. Investors are now paying high prices for regional chains – up to 18 to 20 times earnings before interest, taxes, depreciation and amortization, according to bankers involved in the deals.

Until recently, car washes were unattractive for private equity. These were mostly cash businesses whose sales fluctuated with the weather and required several employees to be on site. When car wash owners introduced prepaid wash subscriptions, revenue became more consistent and fewer employees had to be on site. This caught the attention of private equity investors.

Subscriptions also mean that much of the car wash process is automated, which helps boost profits. Subscribers receive a radio-frequency identification tag for their windshields that allows a machine to read what package they have, triggering the right mix of cleaning and chemicals. A typical express wash only requires two employees working at a time, which results in high operating margins of around 65%, excluding rental costs.

When Mammoth enters a market, it buys a dominant brand with multiple locations, then picks up smaller players in those same markets, which it rebrands to match the larger chain. Its car wash brands include Swifty, Marc-1, Finish Line, Wiggy Wash, PitStop, Busy Bee, PureMagic and Silverstar, among others. It also builds new locations, which typically cost between $4.5 million and $5 million per capita, including land.

Mammoth saves money by buying cleaning chemicals and other supplies in bulk. It centralized customer service, recruiting, training, human resources and back-office functions such as payroll and accounting.

Car washes have become a hugely popular real estate game for individual investors, said Jeff Lefko of real estate advisory firm Hanley Investment Group, where car wash deals now make up a significant portion of revenue.

“There’s no other operation on a one-acre site that can sell $1 million to $2.5 million and pocket half that,” he said.

Leave a Comment

Your email address will not be published.