If you are an individual owner operator, you may not like the outlook provided in the most recent industry reports and executive forecasts. According to the panelists,
By Robert Roman
If you are an individual owner operator, you may not like the outlook provided in the most recent industry reports and executive forecasts. According to the panelists, mom and pop will find it more difficult to compete with the growing pool of well capitalized private equity firms.
Supposedly you have three choices going forward: maximize profits and sell, form alliances, or remain independent and prepare for battle.Folks who should consider this advice are those located in an area where it would make financial sense for a private equity firm to invest.
For example, if we prepared a sanity test for a $4 million express, the maximum allowable monthly payment would be around $22,000. For this investment to make financial sense, gross sales revenue would need to be at least $750,000.
According to a report published by Davidson Capital Advisors, the median and average revenue of washes involved in some recent merger and acquisition deals was $787,945 and $710,795, respectively.
Since most operators compete against several other sites, the target market for private equity (PE) investment at this level might have a threshold population of around 30,000 and perhaps a little less.
According to Statista, there are approximately 19,500 incorporated cities, towns, and villages in the United States. Of these, 16,410 cities or 84 percent have a population under 10,000. 14,768 cities or 76 percent have a population under 5,000. Only 2,100 cities or 11 percent have population of more than 20,000.
Consequently, we could argue that car wash operators in small-town America should be able to fly under the radar screen of PE firms.
Other independent operators who might fall under the radar screen are those who provide assisted-services. For example, COVID-19 has created the need, and increased demand for, the proper cleaning, disinfecting, and sanitizing of the interiors of vehicles. This has made interior cleaning more complicated and labor intensive. Since PE investment avoids, for the most part, the challenge of managing a large number of employees, this is an opportunity for mom and pop to capture a large share of the market.
Alliances can be a good thing. Alliances are relationships formed for mutual benefit. This can include joining a professional car wash association, joining a buying cooperative, and, more recently, joining a digital car wash network.
As for preparing for battle, individual owners who survived and prospered after the Great Recession should be prepared. Here, personality comes into play because the PE firm isn’t the competition, rather it’s the company that operates the car wash site.
Personality or goodwill is a crucial part in the valuation of special-use properties such as a commercial car wash. Attributes of personality are a highly regarded business, history of success, strong customer base, brand, and above average financial performance.
As for maximizing profits, that should be the goal and objective of any company that wants to make money now and in the future.
In the final analysis, most independent operators will not become targets or victims of firms that are financial sponsors rather than car washers. Choices such as “maximize profits and sell” require calm and objectivity without bias. On the other hand, to remain independent, form alliances, and prepare for battle can make a lot of sense.