BY TOM GRESHAM

The mergers and acquisitions market for car washes is busy these days, making it particularly important for owners to understand their options as potential sellers, according to industry experts.

The car wash industry has always been a fragmented one with room for consolidation, but its appeal to investors has sharpened in recent years, said Mark Curtis, CEO of Splash Car Washes, especially now that it is proving to be “Amazon-resistant” and even “COVID-resistant” when so many other businesses are not. Andres Bethencourt, Director at private equity firm MKH Capital Partners, said the M&A market for car wash is “quite healthy” at the moment, and Jeff Pavone, principal at Amplify Car Wash Advisors, agreed, saying the country is filled with burgeoning franchises that are attractive to new owners and investors.

“There are lots of opportunities for developing strong brands out there, and there are very few places in the country that have a mature market,” Pavone said.

For operators considering going to market, there are a host of considerations to weigh before moving forward. Deciding whether to sell is only part of the equation. Owners also need to take into account why, when and how to sell, whom to, and for how much. At the outset, experts say it’s essential for owners to first examine the reasons they are considering a sale — the “why,” from both a personal and business standpoint — and then begin to consider the options available to them.

Curtis said owners should think of the post-transaction world and imagine they are looking into a crystal ball.

“If you look into the future and what you want it to hold for you, your family, and your employees, that’s going to be really helpful to you to determine if you want to sell and who you would want to sell to,” Curtis said.

Bethencourt said numerous reasons can prompt a sale ranging from wanting to cash out completely and let someone else run things to hoping to partner with someone who can provide new funding that supports the growth and new resources necessary to compete. Someone who is ready to retire or move onto new challenges will travel a much different path than someone who is still hungry to compete and build their business in a hands-on way.

SCOPE OUT THE APPEAL AND THE WORTH

Experts said a variety of factors can make a car wash operation attractive to potential buyers. One is that the operation is located in a geographic market where it has the potential to be a leading brand, Pavone said. Another is a strong portfolio of existing memberships and recurring revenue already in place.

Perhaps the most crucial element is the potential pipeline for new development the operation represents — room for growth is essential, experts emphasized. “We look at the market and say, ‘How can we grow this market and really gain density?’” Bethencourt said. “You can either develop new sites or acquire competitors, and we like acquisitions where you can ideally do both.”

Finally, the quality of the existing team can be key for many buyers. For instance, Tom Welter, CEO of Clean Streak Ventures, the car wash platform launched by MKH Capital Partners, said his company values operations that have systems, processes and people in place that can be developed, grown and integrated into their platform and operation style.

PRICE ISN’T ONLY FACTOR

If an owner is looking to maximize their return and step completely away from the business, Pavone said price obviously would be paramount. However, he said price might not be the only factor. For instance, the details of the terms from buyers can vary and should be closely studied, Pavone said, such as which buyer is going to close on a deal quicker. In addition, Welter said owners — whether they plan to step away or remain — typically care about their team members and what lies ahead for them if a deal goes through.

“In the deals that we’ve struck, we’ve seen a concern and desire to ensure the continuity of individual employees and that they’re going to be cared for and treated right,” Welter said.

If the owner has plans to remain involved in some capacity, then the culture of your new partner — how naturally it will fit with both you and your operation — becomes king. Curtis said operators need to be clear with themselves and with potential partners just how involved they want to be following a deal. That can require some soul-searching and extensive conversations.

“When you get that big check in your bank account, are you still going to be motivated to do all the things that you’ve been doing?” Curtis said. “Where things can get out of kilter is if their expectation level of you being involved is different than your expectation level of being involved, so the post-transaction relationship will be predicated on how honest both sides are in the pre-transaction negotiation.”

For those seeking to partner with someone, Bethencourt said owners should thoroughly check references and speak with other owners who already have partnered with that entity.

“They’ll tell you exactly what happens afterward — they’ll tell you exactly what types of partners they will be,” Bethencourt said.

Pavone said the biggest mistake he sees sellers make is selling to the first buyer that contacts them. In such an active market, he said, operators are being sought proactively by potential buyers, who are motivated to secure a sale without competition. When you secure competitive offers, Pavone said, you’re also better able to negotiate for more favorable terms and to find someone who fits your business “like a glove.”

“The No. 1 thing a seller should do is get there and run a competitive process,” Pavone said. “That’s how they’ll know the true value of what they’re worth. A competitive process gets you a variety of terms and a variety of offers, and it also can bring in a potential partner who can be a bull’s eye.”

“You want to close a transaction quickly rather than spending months trying to unwind partnerships, agreements, all the things you’ve been operating with for years and years,” Curtis said. “You don’t want any of that to hold you up.”