March 22, 2022

2022 M&A PREDICTIONS

Carwash investors have an appetite for construction and acquisitions.

Featured in www.carwash.com  By : Rich DiPaolo

The substantial increase in demand has been noticeable for the Carwash Industry. Over the years, carwash sites have greatly grown in number.

Tuck Bettin, CEO/General Manager for Cobblestone Auto Spa, says carwashing is currently in the spotlight and he expects the market to stay there through 2022 and well beyond.

But, what should we expect in 2022 on the M&A carwash front?

Colin May, the managing director at Car Wash Advisory, broker and M&A advisor, offers some market predictions.
“While we predict that the total number of M&A transactions will be flat or even slightly lower in 2022, we think that the average
size per transaction, in dollar terms, will increase compared to 2021 for a few reasons,” asserts May.

“Additionally, some of the mid-sized consolidators that have been building 20-or-30 site carwash portfolios will start to be acquired
by the bigger buyers now that they are reaching a larger scale and their private equity backers are ready to sell and crystalize their return,"
continues May.

Agreeing with May, “with the amount of capital focused on carwashing these days, there are large funds available through investors
who are extremely motivated to get into the industry,“says Bettin.

Indeed, investors will keep on eyeing for carwash space opportunities.

“Buyer appetite for carwash acquisitions is still very, very strong,” May notes.

Built to last

According to a recent Professional Carwashing & Detailing article, 40% of estimated growth in 2021 for the top 10 conveyor chains was via new construction.3 Large chains seem to be shifting toward incorporating more new builds as a key part of the growth strategy, but that doesn’t seem to be a trend that will minimize an operator’s ability to sell in 2022.

“New build carwashes will certainly continue to be a significant part of the growth strategy for the largest chains. In their existing markets, greenfield development is a great way to densify and grow market share in a more cost-effective way than acquisitions given the current industry multiples,” concurs May. “Additionally, as these chains continue to get bigger and bigger, the acquisitions they make need to be larger also in order to ‘move the needle’ in relation to their current size. But, those larger deals typically come with higher price multiples which, on its own, is not a sustainable growth strategy in the long-term. The ability to build new carwashes at a much lower price tag is a great complementary approach.”

Interest in new builds could shift the M&A pendulum back to the buyer’s side in 2022. However, even carwashing is not immune to external, macro-level trends occurring in this country, specifically labor and supply shortage issues. How will this affect new carwash building this year, if at all? At this point, operators and builders our publication speaks with are moving forward as planned with little to no delays expected to impact year-end goals.

Contributing factors

Regardless of how buyers grow and expand this year, contributing factors are expected to continue supporting and carrying these businesses forward. These factors include, but are not limited to, subscription-based membership, availability of funds and the creation of a scalable business model.

“A large number of acquisitions and/or greenfield development are financed with a high proportion of debt capital, and the ease of access to this capital is expected to persist in 2022 at very attractive terms as well as low interest rates, allowing operators to keep their foot on the gas with their aggressive growth plans,” educates May.

May and others warn operators to scale at a manageable pace. After all, despite some perceived public opinion, operating a carwash is not turn-key and it requires operation from skilled operators, managers and team members. Large investors and consolidators are flexing their financial muscle here as well and they’re hiring many of these key people from inside and outside the industry.

Operators also must realize that the dynamics of running a successful carwash or chain has changed from the old ways of doing business and need to adjust accordingly.

What is certainly in the forecast for the remainder of 2022 is more M&A activity as well as positive forward momentum and growth in the carwash market.