The past few years have been defined by M&A. Whether it is one vendor buying another or a growing car wash chain gobbling up all the sites it can, mergers and acquisitions have been the talk of the industry.
Just scan the industry news in this magazine every month, and you will find reports of deep-pocketed investors entering the industry or expanding their holdings. I have spoken to a different car wash operator every month for the past dozen-plus years for our monthly Profile in Success feature. Over the past two years, I have increasingly found myself sitting down with a mega-chain operator as ongoing mom-and-pop success stories become harder and harder to find.
In fact, over the past two years, excluding detail professionals, I have written 16 profiles on car wash operators, and nine of them have featured a surging chain powered by private equity funding (including this month’s look at Summit Wash Holdings starting on page 36). These multi-site operators have scaled their businesses by acquiring established brands, often accelerating from launch to more than 100 locations in just a few years.
Obviously, this kind of hastened expansion would not be possible without partnerships with well-coined investors looking to capitalize on the rising popularity of the profitable, low-labor express model.
However, interest rates have risen sharply recently, making money harder to come by and more expensive to borrow. But has the drying of the proverbial money well equated to a slowdown on the M&A front? Unfortunately, sort of is the most accurate answer I can give. It is impossible to know how many deals have been sunk because of the higher cost of money, but we continue to see new operators enter the space keen on building a car wash empire at previously unprecedented speeds.
To get the inside scoop on the current state of M&A, I asked the participants of our annual Executive Forecast (page 16) what they are seeing and what they think the future holds.
“There will continue to be ongoing M&A opportunities in our industry,” said Christian Seem, the chief stores officer at 160-site Spotless Brands. “We have all seen a slowdown in frequency due to the increased cost of capital.
We believe this won’t last forever.”
While investors are still bullish on the long-term M&A market, are mom-and-pop’s still fielding offers they can’t refuse?
“I used to get several calls a month for me to sell out,” said Dave Koerner, long-time owner of Kerner’s Car Wash & Quick Lube. “That’s slowing down because of the interest rates. When private equity first became interested in car washing, they were spending a lot of money and probably overpaying. The guys who sold out a couple of years ago got top dollar plus, but that has changed a little bit.”
While the terms and frequency of deals have certainly evolved over the past 12-24 months, there is no doubt that private-equity-powered M&A is still a force to reckon with and will continue to reshape our industry.