Options for Funding Growth With Investment Banker Bill Koenig

Ready to grow your car wash chain and wondering about your financing options? There may be more available than you think. In this episode, guest Bill Koenig, a seasoned investment banker, shares with host Lanese Barnett various financing options to facilitate meaningful growth or fund capital improvements on existing sites, many without going to the local bank and signing another personal guarantee.

Bill and Lanese also talk about how firms like Amplify Car Wash Advisors support and advocate on behalf of car wash owners going through a capital advisory process helping ensure the best terms for the owner to maximize their value. Having professional investment banking representation coupled with running a competitive bid process to create healthy tension among potential financiers and lenders can make a major difference in how favorable the financing terms are for the car wash owner. Listen to this episode to learn more about your options to fund growth, and how to get started.

For more about Bill, a full transcript of the interview, and more, check out the post.

Sign up for Car Wash M&A, The Newsletter. | Follow us on social media @AmplifyCarWashAdvisors on LinkedIn or Facebook. | Connect with Lanese on LinkedIn.

Connect With Us:
https://www.facebook.com/AmplifyCapGroup/
https://x.com/i/flow/login?redirect_after_login=%2FCarWashAdvisors%2F
https://www.linkedin.com/company/amplifycapgroup/
https://www.youtube.com/channel/UCyy2-_zM-liZr95drgKDX3g

🎙️ Listen to the #podcast on your favorite platform: https://open.spotify.com/show/0xIAku0j0lr6D178d9apsW?si=dca92125f10c41ba

Listen in for the latest car wash mergers and acquisitions updates and pulse on the industry. Hear monthly from our team of experts as well as industry icons and thought leaders.

Transcript

SPEAKER_01 0:07

Welcome to Car Wash MA, the podcast, brought to you by Amplify Car Wash Advisors, the number one advisors of car wash chains nationwide on mergers and acquisitions in capital advisory services.

SPEAKER_00 0:25

Hi, I'm Lenise Barnett, Vice President of Business Development at Amplify Car Wash Advisors, and your host of Car Wash MA, the podcast. Here we'll take a deep dive into the current mergers and acquisitions activity of the car wash industry with a goal of keeping car wash owners informed on where the market is today and where it's going tomorrow so that you can make informed decisions about your business. We'll help you answer the question: should I sell my car wash now? Or should I enter growth mode and really scale my operation? Each month, I'll speak with industry experts who will share practical advice on how to sell or scale your car wash. While the industry is undoubtedly changing, what remains constant is the need for solid information so you can evaluate where you are and chart the course for the future of your business. Welcome to episode seven of Car Wash MA, the podcast. Today I have Bill Koenig, who is Managing Director of Mergers and Acquisitions at Amplified Car Wash Advisors, on as our guest. And Bill has more than 25 years of experience in investment banking and brings such depth of knowledge to our team on the financial side. And so today we're going to talk about some of the insights and tips that Bill can share on how to fund growth that is separate from selling part of your business and just looking at other ways to fuel that growth. So, Bill, I'd love for you to share with our listeners a little bit about your background and then also what got you interested in the car wash space, particularly.

SPEAKER_03 2:09

Sure, I'd be happy to. Well, you know, California Native by origination, been in the capital market pretty much my entire life. I started off on the private equity side, working for a business in San Diego called Home Capital Development Group. And then I ended up going to work for Warehouse or Venture Company, which was 100% focused on joint ventures in the commercial real estate space. But then ultimately ended up coming over to the banking side, was a corporate banker for a number of years, both real estate industries and then non-real estate industries. And then ended up getting my MBA from USC, gosh, 20 years ago now, uh seems like forever ago. And then ended up going more on the investment banking capital market side. So I worked for a boutique middle market investment bank out in Los Angeles for a number of years and really kind of met Jeff Pavone when I was in that prior role. We were working on a similar client, a shared client, got to know each other through that process and eventually decided to work together. So now I've been here about 18 months, was originally an independent contractor, now full-time. And uh 80% of what I do is really sell side engagements, like you mentioned. That's really, you know, Amplify talks a lot about that, sell side mandates. But then there's also this 20% that's capital raising or debt placements. And so I focus on that as well.

SPEAKER_00 3:21

We're happy that you made the transition over to a full-time car washer. And on the team here, we came on board around the same time. And uh, it's been fun to watch how the team has grown with Amplify Car Wash Advisors and seeing again the depth that our resources we have through the experiences of each of our team members. So, one quick thing, too, just about your transition into specifically working more in the car wash space. What has surprised you most about the car wash industry as you've become more familiar with it as a specific area of business?

SPEAKER_03 3:54

You know, to be honest, it's the margins. You know, I've worked in a lot of different industries, um, many of which I thought had very attractive EBITDA margins, EBIT margins, you name it. And when I got exposed to the car wash business, it was really remarkable how thick the margins are, but also how stable they are, you know, with this growing subscriber base, um this recurring revenue base. It's made the industry incredibly attractive, you know, not only from a risk perspective because the cash flow is so stable, but also from a valuation perspective. And the people, I would say that's the third thing. And there's a lot of really great people in this industry, very smart, very hardworking, salt-of-the-art types. And it's a pleasure to work with people like that.

SPEAKER_00 4:30

I totally, totally agree. That is one of my favorite things about the car wash industry and the community itself, is that you have this broad spectrum of people that all have this shared niche interest. And I say niche to like kind of the broader world, that car washing always kind of gets a side eye from oh, you work in a car wash. And but it's a very, very dynamic industry that I think that once people get exposed internally to it, that they really get drawn because of that communal sense amongst the people. And then it is an attractive business model in and of itself because the money's good. So okay. So you also mentioned earlier that we do a lot of sell side representation, and a lot of our business is kind of focused on we have these three areas in our tagline, sell, partner, and grow. And so we we do talk a lot about the sell side of it and we talk a lot about the partnering side with private equity groups. But what about this third part with grow? What are some of the methods and ways that car wash chain owners can fuel that growth, especially if they're a smaller chain, let's say five to seven locations? What can they do?

SPEAKER_03 5:38

Yeah, that's a great question. So you're right, you know, um, a lot of the activity is around these majority buyouts, but there's also this smaller recapitalization play on the balance sheet. Maybe it's a minority equity raise, maybe it's a non-dilutive debt placement, maybe it's even a sale lease back.

SPEAKER_00 5:55

Bill, can you can you talk to me a little bit about the non-dilutive debt placement? Just for our listeners, kind of unpack that for us, please.

SPEAKER_03 6:02

Yeah. So so essentially it involves going out to a traditional financing source like a bank or maybe a finance company or maybe institutional REIT that'll do a sale lease back where there isn't an exchange of equity interests in the business. It's really a debt facility that's put on the balance sheet, right? So no change in control. It's very cost effective, especially on an after-tax basis versus equity, which can be much more expensive. And it can be used for a variety of things. It can be used to do a technology refresh at the business. It can be used to go out and buy new equipment, or it can be used to do acquisitions, tuck in acquisitions under the existing business. And a lot of times, you know, we'll find, you know, smaller car wash operators, like you mentioned, five to seven units, that don't want to sell their business, aren't looking for a transformation and all the cultural uh issues that come with that. All they really need to do is find some attractive capital to go out and do some acquisitions and grow their business. And we get calls like that quite frequently. We've done quite a few debt placements in that space, both with banks and with non-banks. And like I mentioned earlier, it can be very attractive in terms of the cost. It's non-dilutive in terms of the equity. There's no change in control of ownership. The due diligence is often significantly less than it is with an equity buyout. And there's an abundance of capital in that world that's looking for a home. So I get emails, calls every day from banks, finance companies looking for opportunities both in the car wash space and in the non-car wash space. I mean, it's it's clear that you know, good times and bad banks, lenders, whatnot are constantly looking to deploy capital with attractive opportunities. And there's no shortage of that in the car wash industry.

SPEAKER_00 7:38

For sure. They've figured out what you have that uh once you scratch the surface on the car wash industry, that there's more to be found there than maybe meets the eye on first blush. And really, you're right, the revenue stabilizing monthly plans has been such a game changer for our industry because this is a business that historically lives and dies by the weather. And to my knowledge, so far, you can't control it. So that has been such a change in how the value of and the stability of a car wash is really seen. And then also, of course, we've seen explosive growth in the industry over the last several years. So, with that growth and with increased competition coming in, these alternative means of funding and fueling growth are more important than ever. Because if you have a regional chain that's coming to your market and you have a couple of locations that have been really rock solid in that market and that community, but as somebody that's maybe going to open five stores or six stores in your area, it might be time to be thinking about ramping up as well to defend your turf.

SPEAKER_03 8:48

Yeah, that's right. And not only just in terms of maybe new builds or new site acquisitions, but also in terms of tech refresh, you know, leveraging capital to deploy back into the business, you know, to enhance the operation, enhance the equipment, enhance the technology that's in use to drive efficiencies, all those things that, you know, will help make the business more competitive and ultimately more attractive to customers.

SPEAKER_00 9:09

Oh, absolutely. And you you mentioned the investment in technology. And that's another thing that we are seeing currently is this technological boom where there are a lot of new and emerging innovations that are addressing operational issues that car wash owners face that are helping streamline what they can do in a technology front that has been interesting to watch. That I feel like this is kind of lagged a little bit behind some other industries that have adopted some of these technological advancements sooner. But we're seeing it on the digital side and on with automation and how the payments are processed or how we've had pay gates for a long time, but taking things a step further with app-based platforms and and so on and so forth, that that all of those things cost money. And so, in order to keep up, you have to be able to invest into that to do it.

SPEAKER_03 10:01

Right. Couldn't agree more.

SPEAKER_00 10:04

Let's talk a little bit about what options car wash owners have. So we talked about these alternative lendings and non-banks. So who might be uh a non-bank lender that you would suggest for an option for car wash owners that they may not be aware of or may not have the same access to? What are some of those?

SPEAKER_03 10:23

Yeah, so the two most common ones that come to mind are REITs or finance companies that are doing either sale lease packs, you know, where the car wash owner will sell the underlying real estate and improvements to a third party and then lease it back over some duration of time, 20 years, 25 years, whatever. Or there's the um avenue where a car wash owner can approach one of these finance companies, lever up their existing balance sheet, you know, get an enterprise value loan, which is a loan that's basically lent against the enterprise value, the business. It's typically expressed as a formula, funded debt to EBITA, right? And those are typically, you know, three, four, five times or less. Uh, but you can take that capital from that source, either that REAC financier or that finance company, and then go use it, like I mentioned, to do other things to grow the business, enhance the business or whatnot. Um, the issue comes with, you know, kind of there is that somewhat of a cost to debt. You know, I mentioned it was cheaper than equity, which is true.

SPEAKER_00 11:21

Right.

SPEAKER_03 11:21

But as you look at smaller businesses, you know, under 25 million of EBITDA, as you kind of go down, you generally don't tend to see debt facilities that aren't personally guaranteed. Right. And that can that can be a little concerning to some owners, right? Um, as you get above 25 million of EBITDA, we start to see those personal guarantees go away. And the reason for that is because the corporate governance in the business typically becomes more robust. They often have audited financial statements, they often have advisory boards advising them on the business. They often have more defined management teams and they have bigger market share. So all that kind of comes together to reduce risk and negate the need for those personal repayment guarantees.

SPEAKER_00 12:01

Right. And that's huge because signing on that dotted line for the personal guarantees, I mean, that's a really big way for a car wash owner to de-risk personally by using an alternative source of funding that doesn't require another personal guarantee that maybe they've already been using to get to where they are.

SPEAKER_02 12:19

Right.

SPEAKER_00 12:19

And the ability to grow faster, because I would imagine that there's only so much capital that they could raise going to their local banks within a certain period of time that that kind of that that there's a limit to that or a ceiling.

SPEAKER_03 12:33

Yeah, you know, there's over 7,000 banks in this country, right? Everything from small community banks, 100 million of assets to Bank of America and Wells Fargo and everything in between. So there's no shortage of traditional bank financing and it's cheap. But the problem with banks is that they're slow. Uh, they tend to be focused on, you know, three sources of repayment the asset liquidation value of the business, the enterprise value of the business, and then the personal repayment guarantees. And if they can't get all three of those, it becomes more tenuous for them to get to the finish line. You know, finance companies, read financers tend to be much more creative, a little bit more nimble. They can be more expensive. So there is a trade-off, you know, in terms of price, cost-benefit analysis. Um, but they all pretty much require, like I said, personal repayment guarantees under 25 million. So that's been a pretty fairly constant element.

SPEAKER_00 13:20

And you mentioned the sale lease back option. So let's talk a little bit about uh is there a threshold if you have a portfolio of sites that you want to be mindful of how many of those sites that you've already sold the real estate as pertains to a future sale, a full exit. Is there anything that car wash owners need to be kind of mindful of when it comes to how they're choosing to fund their growth? But like if if they did all sale lease backs on all their properties, does that affect the future value of their business when they're looking to exit?

SPEAKER_03 13:54

Yeah, it does. It does affect the future value of the business. You're taking an asset on your balance sheet and you're moving it off your balance sheet, you're agreeing to make a lease payment over time to service that facility. And so you're reducing, you know, those assets on that business and the enterprise value goes down accordingly. The EBITDA is also impacted, right? Because you're now paying rent on an asset that before you owned yourself and may or may not have been paying rent on, or it could have been pocket-to-pocket rent, it'll typically get added back in terms of coming up with an adjusted EBITDA for a valuation exercise. But the flip side of that is that when you do a sale lease back, you're reducing the invested capital in the business. And all things being equal, if the marginal benefit of that EBITA exceeds the cost of that lease, the invested capital goes down, the return on invested capital goes up, right? And so, you know, cost of capital being the same, that's how you create shareholder value. So it can be a very attractive way for any owner of any business uh to create long-term shareholder value. But you're right. I mean, there is a bit of a cost there in terms of when you do exit the business, the valuation can come down a little bit. Just using simple math, it could be, you know, without sale lease backs, you're 15 times your trailing 12-month adjusted dividend in terms of a valuation metric after you might be 12 or 13 times. Still a great number, still a great outcome, but there's always give and take. Same thing with debt. You know, if you lever up your balance sheet and you go sell your business, you know, most uh sales are structured on a cash-free, debt-free basis, which means the seller gets to sweep the cash, but they have to pay off the debt. So if you lever up your balance sheet and you sell your business, it's less money in your pocket at the end of the day.

SPEAKER_00 15:29

So it's like everything, there is a cost, nothing's free.

SPEAKER_03 15:33

Nothing's free, no free lunches.

SPEAKER_00 15:35

But that's where having somebody help you walk through these different options and guide you through this process, like yourself, can really make a difference because um if you are a typical car wash owner that you're laser focused on your operations and that's what you're really good at. And maybe sourcing these different financing options is not your area of expertise. So, what are some of the reasons that someone might benefit or that the advantages of having a professional advisor in this area to walk an owner through what their options are and walk them through the process?

SPEAKER_03 16:11

Yeah, so that's where we can really add a lot of value. You know, you think of the large Fortune 500 company that has a dedicated internal treasury team and a CFO, it's easy for them to go out and raise capital, either debt or equity, because they know who the key sources are. They know who to call, right? Small business owner may not know who to call. I mean, I mentioned earlier there's 7,000 banks, you know, there's literally thousands of finance companies, and I don't know how many REITs, but there's a lot of them, you know. And who do you call, right? And if you do know somebody at Bank of America or your local community bank, you know, are you calling the right person? If you call somebody in the real estate industries group, they may know nothing about car wash and they may just decline the credit and it dies on the vine, right? So that's where we come into play. Yeah, we wasted the time. So it's not just understanding what banks look at, right? I mean, they're looking at liquidity, they're looking at solvency, they're looking at how to mitigate risk. You know, we can help with that. I was a creditor, I know how to mitigate risk, I know how to structure credit facilities, so we can help with that. Uh, but then we also knew who to call internally. You know, we know who the lenders are within these banks that actually will do car wash lending, that have an appetite to do it. So you get a response that's favorable, not just a no return phone call. And there's a lot of work that goes into this too. I mean, banks not just they don't just want to see financials, they want to see projections, they want to see management team bios, they want to see subscription trends, they want to see churn trends. You know, it's not the same level of due diligence that a private equity buyer or strategic buyer, you know, would look at in a full-blown sale. Uh, but there's still a fair degree of due diligence that they dive into. And, you know, we can help pull all that together, put it in a nice clean package that we can then share with 20 or 30 lenders and create that competitive tension, that dynamic, right, you know, that's going to get our clients the best price and terms.

SPEAKER_00 17:54

And that's really the key here is that competitive component of it to secure the best price and the best terms. So let's talk about some of the terms that can be more favorable to our car wash owner that we would advocate for that maybe wouldn't be on the table unrepresented.

SPEAKER_03 18:11

Well, you know, first of all, it's the interest rate. You know, without a competitive process, you know, who knows what you're going to pay? And it's not just the rate, it's the fees as well. You know, there's usually an upfront commitment fee. Sometimes there's unused line fees. And so you take all that in connection with interest rates, and it can push the yield up considerably for the borrower, right? So that's the obvious one. But the other one is terms, advance rates. You know, how much will the lender lend? And, you know, typically on a, if you're looking to borrow funds to go do acquisitions, it'll be more of a leverage type loan structure that'll be governed by uh funded debt to EBIDOC covenants, fixed charge coverage covenants. You know, as a borrower, you want the most liberal covenants you can get. And again, you're not going to find the top, the limit, unless you test that, you know, with the broader capital market and create that competitive tension. And again, you know, I mentioned personal repayment guarantees. We try ad nauseum to try to get those off the table as best we can. You know, it's very difficult to do that, but you know, sometimes you can get there with alternative structures. Carry agreement structure is one that's not widely used anymore, but you know, I still use occasionally, and sometimes I get I'll get resonance from that. And they basically that instead of a personal repayment guarantee, the obligor agrees to carry the property while the bank goes through a mitigation exercise if there's a default right. So that was used in California, you know, many years ago and still used to some extent. But a lot of people will know about that. So there's some creative things we can throw on the table. There's burn-offs on the guarantee. You know, you may start with high leverage, but then as the business burns the leverage down, you know, say from maybe four times funded debt Debita down to two times funded debt Debida or less, we'll advocate for those guarantees to go away. And sometimes we're successful, sometimes we're not. But you know, if you don't have those end in sight. Yeah, right. If you don't ask for that stuff and you don't offer up some creative alternatives, you're never going to get it. Right. So, you know, but the all these are ways we can add value to the process. And then I think the third thing is time. You know, it's very time consuming to talk to 15 to 20 lenders. I mean, we'll take those phone calls, we'll respond to those emails, you know, we'll negotiate on your behalf, we'll be the bad cop if we have to be, right? To get you the best outcome. So when the relationship is actually solidified, the loans closed, the financing's in place, you know, they feel everybody feels good about it, right?

SPEAKER_00 20:28

Exactly. And that's something that we talk about on the MA side as well. But while we're representing the car wash owner, we're also having these relationships with the other side. So in this case, the lenders or whoever the capital providers are, they're looking to put their money somewhere. So they want a place to put their money, and we want to just make sure if it is with our client that we're maximizing their the terms and everything for them. But it can be a win-win situation for both parties involved that everybody walks away happy from it.

SPEAKER_02 20:59

Absolutely.

SPEAKER_00 21:00

And that's definitely our goal.

SPEAKER_02 21:02

Definitely.

SPEAKER_00 21:03

With this topic, we spoke a little bit about the rising competition in the car wash space. What do you see coming through for the next through the end of the year and then into 2023 as far as any trends or any just your predictions of what we might see on a growth level or how car wash chains continue to scale up?

SPEAKER_03 21:26

A lot of people were concerned about an economic slowdown and how that may affect the MA activity in the car wash space. And frankly, I haven't seen that yet. There still seems to be a tremendous amount of interest to consolidate in the industry, you know, from financial buyers and strategic buyers. That doesn't appear to be slowing down at all. So I expect that to continue. The consolidation trend, the technology overlay is going to be tremendous. Virtually every financial buyer we talk to talks about the lack of technological innovation, artificial intelligence, other electronic digitization. Methods that have not been overlaid over the industry or used to leverage efficiencies in the industry. That's definitely going to continue through the end of the year and into 2023. And I think, you know, the availability of financing, the appetite from creditors to continue to lend into the industry, it continues to evolve. Car wash is a lot like the fast food franchise industry was 20 years ago. Same, same exact concept. You've got a commercial pad, you've got a building on it. You've got people going through a fast food lane, buying food. Lenders struggled with that years ago as well, right? Is it a business loan? Is it a real estate?

SPEAKER_00 22:33

People want to pick up, you know, pick up their food and take it with them, or won't they want to sit down at a table and have someone serve them? But what what we heard with the Express Exterior model, like no one's going to want to vacuum their own car. This is ludicrous.

SPEAKER_03 22:45

Right, right. And so all those fears have now gone away, right? People see it as a legitimate business. The capital market has become very sophisticated. We know everybody knows now what good margins are versus bad margins, what a good operator looks like in terms of churn statistics and membership profile versus what a poor operator doesn't. You know, six years ago that wasn't the case. Nobody had a clue, right? And so now it's become very sophisticated, which is good because more people and more lenders have entered that fray, that capital provider segment of it, availability of funds has gone up precipitously because of that.

SPEAKER_00 23:18

And it's beneficial for the consumer as well, because as this iteration or this genesis of the car wash industry keeps going, we're providing a better product too. We, as the car wash industry, we are providing new services in ways that are appealing to customers because we keep seeing the demand and the appetite for professional car washing rise. So we haven't even peaked on where saturation may be because people still want it. And even through COVID, and there was a huge concern about people aren't driving, they're not going to work. But the car wash industry was very resilient. And so that is something that leaves some optimism with the current economic climate that's a little bit changing, or there's some fears with things going on and interest rates and global issues that affect all businesses. But so far, we've seen that continued resiliency with the car wash industry.

SPEAKER_03 24:14

Yep. The do-it-for-me trend is going to continue, right? And car wash plays right into that. It takes a lot less water to go through a commercial car wash than it does to do it yourself. And with the water issues, especially in the West, where I live, that's a real concern, right? So I think that all benefits the industry long term.

SPEAKER_00 24:31

Gosh, and you know, you talk about water issues. So I'm in Texas, you're in Arizona, big drought situations right now, but we're this is something that happens a lot. But even globally, that in Europe, that they're having crazy wildfires and that the their main river sources are low. And so it is a little bit of a, you know, it's something to be mindful of that water is going to remain a very hot button topic. That again in in Texas and Arizona, particularly, it's always something that's kind of in California, it's always something you're kind of thinking about. But it seems globally that water continues to be a big issue. Bill, we talked a little bit in the beginning about those three things that sell, partner, grow. And uh, I just wanted to circle back with that and talk about some of the benefits specifically of using capital advisory and using these alternative means of funding to grow your business as opposed to funding through equity.

SPEAKER_03 25:26

Yeah, so there's there's a number of benefits in using debt versus going to a sale and raising equity. I mean, the most obvious one is that the business owner retains control, 100% control, and also is not dilutive in terms of their equity ownership. That's a big one, right? It's um debt is non-dilutive. Uh, the second one is that debt is cheap, both on a pre-tax basis and even more so on a post-tax basis. You know, equity can cost no north of 25, 30%. Debt is typically in that kind of 5 to 10% range, right? Pre-tax, which is significantly less than equity. A lot of people don't realize that equity has a cost, even though it doesn't have a mandated fixed payment every month or every quarter. There's an opportunity cost, there's a public capital market, and everything's benchmarked according to that in terms of equity return requirements.

SPEAKER_00 26:11

Well, and the control side of it.

SPEAKER_03 26:13

Yeah, and the control is huge. You go out and sell 51% of your business. Your partner obviously is going to be very smart, hopefully. There's going to be a great cultural fit, and they're going to help you scale the business, but they're going to demand a lot. I mean, the reporting is going to be monthly. There's going to be quarterly board meetings, if not more. You don't have any of that with debt. I mean, you have some reporting requirements, they're typically quarterly, and then there's annual as well. But there's no typically monthly, you know, reporting. There's no mandatory sit-down meetings with your lender.

SPEAKER_00 26:42

And that's something that we find a lot with car wash owners that they are used to being their own boss. And so they have, they have started their business, grown their business. And when you change the structure of that, that now they're they're not their own boss, it can be really beneficial, but it can also be a very tough transition. So, this is a way for especially people who are looking to continue their career and growing and scaling and and are not ready to take that avenue, this is a great option for them.

SPEAKER_03 27:09

That's exactly right. Completely agree. The other thing is there's a couple of more things here. The level of due diligence is nowhere near as exhaustive, you know, with debt raise as it is with an equity raise. And that's another thing to keep in mind. And that for businesses that you know have a modest amount of leverage on their balance sheet right now, you know, leveraging up that balance sheet to go do acquisitions or maybe even do a dividend recap is a very viable alternative to an equity raise. So those are all things that you know, business owners ought to consider when they think about a full sale, a partial sale, or a debt placement.

SPEAKER_00 27:41

And talk to me about the uh dividend recap.

SPEAKER_03 27:44

Yeah. So a dividend recap essentially is a company borrowing money, leveraging up their balance sheet, and then distributing out those debt proceeds to the equity owners as a dividend distribution, a special one-time dividend distribution. Commonplace in the corporate world to see leverage recaps, not so much in the car wash space yet, but I think there's an opportunity for that. Good example of that would be someone who had, you know, seven to 10 or more stabilized car wash assets. They've been in the family or they've been in the under the common ownership for many years, very minimal debt. Maybe there's some equipment debt, but that's it. So there's an opportunity there potentially to go from, you know, kind of zero debt up to maybe three, three and a half times funded debt to Ebidah and use those debt proceeds either as a full dividend distribution or as a partial dividend distribution or an equipment refresh or a technology refresh. So lots of different flexible avenues that one can take with that.

SPEAKER_00 28:35

Right. And what would you suggest to car wash owners that are looking to begin this process? Are there any tips or suggestions that you have on what they can do internally to prepare either their books and records or prepare their materials as they start navigating potential capital raises through these alternative means?

SPEAKER_03 28:58

Yeah, my advice to them is exactly what we would do if they were to hire us, right, to go out and seek capital for them. You know, I would start thinking about getting the financial house in order, make sure your books and records are clean. If you haven't had a CPA, do your accounting, your bookkeeping. It might be a good idea to start thinking about that. If you don't have a CPA, then definitely pull all your tax returns together because that will be something that lenders will want to vet. Make sure you pull together your uh ownership schematic so someone can easily see how the business is structured. Uh, pull together your functional org chart or your people, put pull together bios on your key people, look at key statistics on your customer base, you know, customer churn, growth trends, you know, how you're taking how any new marketing initiatives you're pursuing to drive revenue in the business, any technology initiatives you've taken in the past or planning on taking in the future. Clearly identify what the sources and uses of the loan proceeds are going to be for, and clearly think about what the repayment sources are gonna be, right? Your cash flow, uh, the value of your assets, the value of your business, all that stuff goes into kind of the lender's mindset of how they wrap their brain around whether this is a good opportunity for debt or not a good opportunity for debt.

SPEAKER_00 30:07

Well, and that stuff takes a lot of work. So that is where it's nice to have uh an outsourced option that's a professional that knows exactly what those lenders are looking for to help compile all that information that owners may not just have laying on their desk in a nice folder that has everything prepared, ready to go to show someone else. So that is a really attractive part of it of not getting bogged down with pulling together all that information that we can help with that.

SPEAKER_01 30:34

Right.

SPEAKER_00 30:35

Well, Bill, thank you so much for being on with us today. Again, this was episode seven of Car Wash MA, the podcast. It's hard to believe that we've crossed over the you know, the halfway mark of the year and the seven months have gone by so fast. Where can people reach you if they have any questions or want to reach out to you directly?

SPEAKER_03 30:55

Uh, you know, my cell phone's always the best place to reach me. That's uh 602-769-4501. Text or call anytime.

SPEAKER_00 31:03

I'll take you up on it, Bill. I got some questions. But thank you again, and thank you to all of our listeners. You can find new episodes the last Thursday of every month. Please feel free to review our show if you are so inclined, and we will see you next month.

SPEAKER_01 31:20

Thank you for joining us on this episode of Car Wash MA, the podcast, with your host, Lenice Barnett. Like what you hear? Subscribe to our podcast feed and leave us a review or follow us on social media at Amplify Car Wash Advisors. Want more MA information? Visit our website at amplifywash.com and listen for new episodes on the last Thursday of each month.