Up until about three years ago, the car wash industry wasn’t particularly appealing to investors. Private equity firms owned approximately 1% of the nation’s 65,000 total car washes and 2% of the nation’s roughly 17,000 conveyor-style car washes as of June 2019, according to data from one of the industry’s specialized brokerages, New York-based Car Wash Advisory LLC.
In the next five years, some industry advisers expect that to change.
“We’re nearing the basket tipping point, but there is still a ton of runway to go,” BlackArch Partners LP managing director John Conklin said. “If I think about car wash operators with some sort of private equity backing in this space five or so years ago, I’d say there were no more than 10. Now I’d say there’s probably 50.”
Car washes were for a long time primarily a cash-heavy, labor-intensive model. Previously, the focus was on full-service car washes, where a driver would wait 45 minutes to have their car washed and detailed.
Advances in technology have transformed once-old school car washes into scalable businesses. New sales and marketing models like monthly memberships create recurring revenue for car washes and allow them to build a brand.
It is not unheard of for a single location to have 5,000 subscribers, and when you do the math, even at a lower cost package of $20 per month, that is $1.2 million in guaranteed revenue annually.
This new model increases revenue consistency and decreases the need for on-site staff. This is exactly the type of business investors salivate over.
They are interested in car wash businesses that own express washes, also known as tunnel washes and conveyor washes. These locations are nearly fully automated, require minimal labor, and utilize conveyor or belt equipment to transport vehicles through the car-washing process.
According to bankers participating in the acquisitions, investors are now paying high sums for regional chains, as much as 18-to-20 times earnings before interest, taxes, depreciation, and amortization. This is a significant increase from previous years.
According to Grand View Research Inc., the express car wash industry has a current market size of over $11 billion and is anticipated to increase at a CAGR of 4.0 percent to 4.8 percent through 2028.
In the United States, where more than 72% of drivers utilize professional car wash services on average 13 times annually, conveyor car washes routinely generate the highest profits in the industry.
Demand is outpacing the supply. Even in the face of inflation and rising gas prices, its believed that the satisfaction customers feel from keeping their cars clean combined with the relative affordability of the service has created a strong opportunity for growth.
However, as a result of rising prices for labor, chemicals, and equipment, the sustainability of the business model for car washes is being put to the test by high inflation.
Some investors are concerned that customers would stop washing their vehicles if the economy experiences a downturn, despite the fact that the car-washing sector likes to promote the fact that it is resilient to economic downturns.
“Car washes went from not being on the private equity radar to being at the forefront for nearly every firm,” says Geoffrey Jervis, co-founder, and CEO of Mint Eco Car Wash. “They all want to be in the industry in some way, which means there are billions of dollars flowing into this space right now.”
