Selling your business can be a daunting process to begin. For many car wash owners, the emotional investment from countless hours at the wash; early morning phone calls from the site manager; and learning to moonlight as an electrician, mechanic, chemist, marketing guru, and therapist all leave a lasting impression and create a real attachment to the business. Not to mention the money you have invested along the way that you now want to see a generous return on as you embark on your next chapter.
PREPARE FOR THE SALE
So, how do you prepare for the sale of your car wash and position yourself for the best possible outcome? Here are five tips to help get you started:
1. Know Your Options
Think about your end goal and what you’re trying to achieve. Do you want to exit completely or stay in the game? This will help you identify your target buyer before beginning the sale process. Private equity? A strategic partner? As the car wash industry continues to grow at a rapid pace, smaller chains are becoming more and more valuable. Many owners have already been contacted by a known buyer/consolidator in the industry at a time when they hadn’t even thought about selling. But before accepting the first offer that comes along, know your options, and don’t risk leaving money on the table. In fact, with the right guidance, savvy car wash owners should aim to receive multiple offers, which increases the likelihood that the eventual deal they accept is fair.
2. Showcase Your Strengths
This is your time to shine. Identify areas of your business that are particularly attractive to buyers. Do you have a loyal monthly plan membership or other reward program? Just like showing a house, think about the curb appeal, make sure your landscaping is well-manicured and free of debris and your employees are in uniform. Most likely, serious potential buyers will want to make a site visit, perhaps unannounced, and these factors can help differentiate your business from others in your area. Also, while getting ready for the sale, continue to make needed improvements or repairs to keep your operation running smoothly. Lastly, to make the process more efficient, have financial and operational data organized and ready to go. Your time investment in the beginning will pay off resulting in fewer headaches down the road.
3. Determine the Value of Your Business
Understand the range of EBITDA multiples comparable car washes are transacting for and determine how to position your operation to command a higher number within that range. Understand which addbacks are acceptable and how the type of buyer may or may not agree to them. For instance, buyers with an existing car wash platform may accept an owner salary addback while buyers without platforms may need to hire someone to replace an owner, thus eliminating the addback. In addition to cash flow, the size of your operation is a key factor in determining your transaction value. Not only do buyers prefer scale, having a tangible and actionable pipeline to grow the footprint may be the difference between a high, single-digit multiple and a double-digit multiple. Other considerations include clean books and records, the depth of your monthly membership program, the amount of deferred maintenance, the car wash’s brand value in the local community, and the management team in place. Further, the location of your wash and the level of competition, existing and incoming, nearby all have an impact on the valuation of your business.
4. Don’t Go It Alone
Hire an advisory firm that specializes in the car wash business, has current knowledge of market conditions, and understands what a rapidly changing market environment means to you during a sale. The market is moving so fast that even numbers from six months ago aren’t relevant today. Is the firm working for you and are your strategies aligned? By being on the same page, the advisory firm can match the seller with the right buyer. Look at more than just the purchase price because all terms are not equal. It is in your best interest to have an expert advocate on your side that examines the fine details of the deal and negotiates terms and conditions on your behalf. Is there a non-compete? What are the reps and warranties? Is there a holdback, and if so, how long? Insist on a strong non-disclosure agreement. Remember, most buyers know more about buying than you do about selling.
5. Get your transaction team in place.
To maximize the value of your business, it is prudent to run a competitive bid process with an experienced mergers and acquisitions (M&A) advisor. Given the complexity of an M&A transaction, it is crucial for you to bring on the proper execution team, including an experienced M&A lawyer. The M&A process is very different from a traditional real estate transaction so make sure that if you intend on hiring a real estate or business attorney, that they have experience negotiating these types of contracts.
That being said, there are buyers who prefer to run a real estate process out of convenience or familiarity. Having a trustworthy CPA or tax attorney on hand will also be important in helping you understand your tax exposure from the sale. If you intend on doing a 1031 Exchange, start exploring your options at the start of diligence. Finally, before closing, know how and what you would like to tell your staff and key management to prepare them for the transition.
BUT YOU NEED TO ACT FAST
While the U.S. economy has taken a hit from COVID-19, the car wash industry has weathered the storm, and to many big-time buyers, emerged more attractive than ever as a pandemic-proof model. The car wash business is no longer a “mom and pop” business. Regional chains are growing at the fastest rate in industry history and have the ability to deliver customers more than a single location but a brand. Taking the chance that a competitor secures market share is a huge risk. Every time a competitor adds a location, your site is devalued. In today’s market, the cost of doing nothing is a “going out of business” strategy; either sell or grow. And if it’s not the risk of larger brands eyeing your market, changing tax laws can have big implications on your profit. If selling your business is on your mind, consider bumping up the timeline to take advantage of more favorable conditions, as increasing capital gains taxes can have a meaningful impact on your takeaway from a sale. Doing some legwork before embarking on the sales process can shed months of the transaction timeline, which is even more important with such uncertainty on tax treatment.
At the end of the day, you want to feel confident that you made the best possible decision and received maximum value for the car wash operation you worked so hard to build. Partner with reputable advisors that understand the complexities of the car wash industry and can strategically guide you through the full-circle process of marketing and selling your business.
Jeff Pavone is a partner at Amplify Car Wash Advisors, a national full-service car wash advisory firm. With a mission of creating wealth for clients, Amplify helps car wash owners sell, partner, or grow using practical industry experience as operators coupled with expertise in mergers and acquisitions, car wash sales, and capital advisory. Learn more at AmplifyWash.com or contact Jeff at JPavone@AmplifyWash.com