What Is Driving Multiples Today?

Explore the nuanced world of car wash multiples with hosts Chris Jenks and Jeff Pavone on Behind The Business. This episode provides an essential guide for car wash owners and investors, dissecting what truly drives valuation in today's dynamic market. Learn about the shift towards disciplined buying, the impact of market saturation, and the critical role of KPIs in maximizing your business's worth. Discover how strategic positioning, leveraging technology, and understanding investor types like family offices can shape the future of your car wash enterprise. Get actionable insights to navigate the M&A landscape and make informed decisions about growth and exit strategies.

What You'll Learn:

• The current state of the car wash industry and buyer behavior.
• Factors influencing car wash multiples beyond just numbers.
• The importance of membership penetration and other key performance indicators (KPIs).
• How private credit markets and family offices are impacting investment.
• Strategies for maximizing your car wash's valuation.
• The future of car washing: consolidation, technology, and regional dominance.
• Practical advice on evaluating and implementing new technologies.

Don't miss this deep dive into the economics and future of the car wash business!
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Transcript

SPEAKER_01 0:00

There's a there's a lot of that goes into really maximize the value of someone's company beyond just you know throwing out a number.

SPEAKER_00 0:06

We get asked this question all the time, right? Where are multiples at today? Groups out there, we're not doing a good enough job talking about what drives a multiple. Yeah, we could tell you we're 10 to 11x, but does that really matter?

SPEAKER_01 0:15

We've got a lot of sellers that will come to us and say, we we've got this thing that we can add back, and we're gonna we're gonna say it's really net market, we can't, but we're gonna show them what good looks like, how we can get their company looking good and presenting it the best way possible.

SPEAKER_00 0:29

The reality is no business is valued the same way. There are really two key inputs that drive a multiple, right? It's all about risk, it's all about growth. All right, how's everybody doing? My name is Chris Jenks, I'm CEO and partner of Amplified Capital Group, and with me I'm Jeff Pavone, founding partner of Amplified Capital Group. Uh needless to say, it's been a pretty dynamic start to 2026 here. And uh Jeff, you know, want to start off a little bit. We have a full quarter underneath our belt here. What have we seen so far to start off the year? And then more importantly, what do we expect to see here going forward for the rest of the year as relates to car wash MA?

SPEAKER_01 1:08

Yeah, I mean, Chris, we've seen a kind of a very disciplined start of the year. So there's there were, you know, I I think sometime around the fourth quarter, we had a podcast and talked about a billion dollars in transactions getting closed uh over a six-month period. You know, I I think that's gonna get extended maybe a little bit, maybe it's seven or eight months, but we're going to see that about a billion dollars in in transactions that actually gotten closed. So there are deals that are getting done in the space. I can we can only tell you, and and and currently there are some significant deals in the works right now moving forward that should get closed by the end of 2026. What we're seeing right now is though an incredibly disciplined buyer. I think the buyer today has way more options than they used to. There's no longer that there's no deal they have to do. They're gonna be selective, they're gonna be disciplined in how they approach it, you know, looking to densify some of the markets they're currently in, maybe off, maybe get rid of some of the markets that they're not in. And and they're there's a big emphasis now on now on new markets that are higher barrier to entry markets. You know, we could talk about the Northeast and some other markets that have gotten some real strong interest because we're finding out that, you know, in some of the the really more saturated markets or overbuilt markets, you know, it's you know, part they've got a consistent problem. It's it's easy to build. And so, you know, I I think we're finding that some of the sponsors out there are looking at these more these other markets saying, you know what, they may take longer to build, but they're worth it because we're not competing with with 10 other car washes.

SPEAKER_00 2:52

Yeah, I agree. I think you know, if we're to take a step back here and think a little bit more about the secular drivers that really kind of create a lot of this enthusiasm around the car wash sector, a lot of that still remains today, right? We still have a high degree of fragmentation within the car wash industry despite some consolidation amongst some of the top players in the sector. Um you have a consumer that continues to embrace professional car washing as a service. And then in a backdrop where you have the emergence of recurring revenues from unlimited member subscriptions. All that is very fair. Um you have exceptional unit level economics, the ability to scale the operation. You know, what's different, I think, today is last year, to no surprise, we did have a little bit of stress is the sector as a whole uh digested a lot of the new unit growth, right? Uh 2024, 2025. You know, we continue to see a pretty healthy clip of new unit expansion. And as the market has fully digested, a lot of the new units that have come online. I definitely think we're back and seeing some really attractive and some interesting deals come to market today. But to Jeff, your point, I mean, it's it's a lot more discipline. Now you layer on a macro environment where you have just nothing but geopolitical risk, whether it be conflict in Iran, um uncertainty around inflation, Fed rate path, et cetera. So I think what you're seeing today is a lot more discipline in how groups are underwriting. And it's not to say they're avoiding MA or they're not participating in full or paying nice multiples on deals and transactions, but they're a lot more selective in how they get there. And I think one comment you made is MSA, your market certainly matters, right? We saw in certain areas of the US fair amounts of encroachment just because it's easier to build a car wash. You don't have as much entitlement risk in the process, less development risk, easier to put the units online. That said, in other geographies, the country where you may be a little bit more landlocked, you have more abundant white space, there's more growth. And you highlight the Northeast specifically. I definitely think that's one you know core area in geography where we're seeing seeing some activity today of some new entrants moving to the market. Any other geographies that you're seeing that are uh of high interest amongst some of the consolidators of car wash assets?

SPEAKER_01 5:00

Yeah, I mean, I the West Coast, I think, has some strong interest. I mean, we're we're finding that, you know, I I think they've expanded. I think in general they're look they're expanding, looking at at markets that have real opportunity for, you know, to for growth. And so, you know, some of the Midwest markets or some of the markets that have been, I guess, underbuilt compared to some of the other markets, where you got high density, and it's all about you give me high density and and and lack of competition, makes for a good for a very attractive uh place to go build. And so they'd rather spend, you know, if they got to spend an extra 25% to enter those markets, far more attractive than having a market where somebody can build three or four car washes um in a in a smaller market.

SPEAKER_00 5:45

So with that, um, let's talk about multiples where they're at. I think we we get asked this question all the time, right? Where are multiples at today? And you know, sure, we could fling numbers at you all day long, but I think groups out there, we're not doing a good enough job talking about what drives the mark, a multiple, right? Um, yeah, we could tell you we're 10 to 11x, but does that really matter? Um, the reality is no business is valued the same way. And as I think about multiples, right, going back to my old career, there are really two key inputs that drive a multiple, right? It's all about risk, it's all about growth. If you're lower risk, have high growth, generally speaking, you have a nice multiple, right? You you command a premium. Conversely, higher risk business with not as much growth profile, um, you're gonna trade below market. Specifically, though, as we tie that back to the car wash industry today. I mean, what are some of the common profiles that you're seeing in deals that we're taking out to market for those that are commanding above market premiums compared to some other deals that are that are transacting?

SPEAKER_01 6:46

This is one of my favorite questions to get asked because it becomes where you have a lot of noise out there. You'll have a lot of other other groups out there just throwing a number, a multiple number, 11 times, 12 times, 10 and a half times, you know, out there. And at the end of the day, it it that that number is such a there's so much more that goes behind that beyond behind that number. And so when we look at it, when you know when we re publish reports and let's say we've averaged and amplify, you know, 12 times you know, over the last year on a multiple, they you know, that that information could be used in the wrong way. That doesn't mean everybody gets 12 times. What it what what what and and and let's use a case study of a deal we just closed, that was a significant deal, north of a hundred million dollar deal. You know, and and the multiple was in the low double digits. You know, that's great, but but the fact of the matter is, you know, they had a brand new build, you know, that was almost eight million dollars. That was new, opened six months, that's included in it. And and they had uh uh pricing from retail to membership that was below market with really some of the best assets in that market. And so the the ability to get that down to a 10 or low singer digit within 12 months was was really high. So when we talk about multiples, there's a lot of a lot that's gonna go into it. You know, you know, what is the what was what your build costs? You know, some guys are building these things for call it $4 million, and some guys are building for $8 or $10 million. You you might not get the same multiple, right? Because the guys building in lower the lower price ones are typically buying in real estate in markets that anybody can build in. And so I I I think you got to look at the the kind of market, the kind of build. Then you look at CapEx. You know, when you're looking at coming into a site, you know, is a site was it newly built? Are you using, you know, who's your POS provider? You know, what does your equipment look like? I mean, so when we start looking at this, we're going to to help you really break down what good looks like from from from all the way from operations and KPIs to what it what your construction and bill looks like. And so there's a there's a hundred things that's going to go into us being able to answer that question of what a multiple is going to trade at.

SPEAKER_00 9:11

Yeah, to me, I think about you know, to your point, we can show where the market's at. And you you can't control where the market's at, but what you can control is how you position your business for a premium multiple. There's a lot of prep work and understanding what metrics a buyer pool really looks at, and they hone in on is they're underwriting deals, and more importantly, is they're thinking about how much your business and your chain is worth. You know, to me, I think the most important thing is centered around the subscrip unlimited subscription model, right? Recurring revenues, that's that's a large reason as to why you know the sponsors have aggressively pursued this industry and this sector is because of you know the exceptionally level economics, you know, two million dollars in top line, supported though by a subscription base behind it. And generally speaking, I think one of the you know the key metrics a lot of groups would focus on would be membership penetration rates. So that's one key key thing to think about as you're entertaining, selling your business. Membership penetration just essentially measures how much of your revenue is derived from your subscription base. Um, what good looks like in our business, you want to be kind of around that 75% mark, and that shows a nice healthy mix of both retail and subscription base, but you have that sustainability and the repeatability of that recurring revenue with the you know membership penetration at 75% range. Um, you know, that that's one key thing is focusing on how to position that that subscription business because again, that's the lifeblood of what groups are looking at today.

SPEAKER_01 10:29

Yeah, no, I what I was gonna say is you know, one of our our role that we play at Amplify with our client is is we really need to do a few things. One is make sure the expectation is set properly for the the owner or the seller. And and and I can tell you the we're not sitting here uh ever promising a certain multiple. What we're going to do is give them uh the expectation based on where their where their car wash chain is at, and two, where the market is at. And because of the amount of transactions that you know we're involved in, you know, we're not basing this on you know fiction. We're not basing it on anything but having real deals closed and having other deals out to market and knowing what the what those bids are coming in at. So from a market standpoint, we we gotta look we gotta really make sure we're advising our client on what what real is in an expectation. Two, what we try to do is we really gotta dig in deep and looking at their company and saying, okay, take their KPIs. And again, one of the easiest KPIs we can look at chemicals. And in chemicals, if somebody is spending 65 cents and market is 40 cents, we can look at that KPI and say we can make an adjustment on that on chemicals of 25 cents. Well, you know, in one particular case, we have got a client washing five million cars. It turned out to be a million two fifty, bottom line times a double-digit multiple. There was a material uh lift in valuation. And so what we're gonna do is we're going to sit down with a client and review all of their KPIs from labor hours to to chemical costs to saying, okay, how do we prepare your company to look good too? How do we what addbacks will a buyer look at and say are reasonable? Because we get a lot of sellers that will come to us and say, we we've got this thing that we can add back, and we're gonna we're gonna say it's really not market, we can't, but we're gonna show them really how how what good looks like, how we can get their company looking good and and presenting it the best way possible. But but I would say there's a there's a lot of that goes into uh really maximize the value of someone's company beyond just uh you know throwing out a number.

SPEAKER_00 12:46

Oh, agreed. I think that's where if we look at this space and some of the largest deals that have been transacted here, I think that's where you know we we see a lot of processes that have failed with the bulge and bracket I banks out there. And by no means is this meant to be disrespect or derogatory, but this is a highly specialized industry, right? Car washing is a unique beast. And there aren't a lot of groups that understand car washing, right? I think the the one interesting thing, Jeff, is we've seen the evolution of this space for gosh, what, north of 20 years, right? I mean, we you you've you've been central a lot of the kind of key consolidation uh with you know the likes of commercial plus. We know this space well, and I think that that's a key differentiator here, right? Is how specialized it is being able to talk to talk, know the playbook. We've had the opportunity to see some of the most successful chains on the market today and see what really drives value. And I think understanding kind of how to reflect, understand the business, do that forensic work to understand where there may be opportunities, whether it be through adbacks or adjusting the PL, but also just giving the operational playbook where you know it may make sense to not transact today. It may make sense to spend the next six months and beyond to write your business, get it to a position where you can command that premium market premium multiple in the market today and have a successful outcome. And I think that's a key difference, right? If you think about, you know, you have the bullish and brackets on one end and they kind of lack that sector specialization to really effectively position a chain. On the other end, you know, there are a plethora of brokers out there. And I think that's the one thing that's different with our process is that it is in fact a process, right? We're not just matchmaking and walking away. Uh, what we're doing is we're spending the time as your advisors to walk through, again, how to position your business, how do you command the best multiple possible based on the characteristics and attributes and attributes of your company? And we walk you through from start to finish to find the best outcome. And it may not always be selling in full, right? It might be finding that right capital partner, it might be reviewing the debt stack in your cap table and re reforming your debt for growth into the future and alleviate yourself from personal guarantees. Um but the point here is is that it's a kind of intersection of the sophistication, the industry specialization, that somebody really needs to get to the outcome that they deserve.

SPEAKER_01 14:54

The biggest challenge is for us to help navigate is this space is dynamic. I can tell you when somebody asks me where we're going uh by the end of the year, we're almost month-to-month, quarter by quarter, because you know, we here's what we we can't answer. You know, right now everything could be going great. And the question is, what's that boogeyman in the room? You know, and and we we just don't know because they keep coming up. So the in this case, you know, over the last, you know, we really expected to see some some really uh great volume getting done here, and all of a sudden the private credit markets, you know, start getting squeezed, and you start seeing the all you see, all this private credit is is kind of the blood that that feeds private equity. And so, you know, why is that important to you? Is because if private equity has cap limitations or limitations on that private credit, they've got to readjust on their thinking on how they move forward on taking down deals. Um that's a problem. I mean, that becomes uh that becomes a real real problem with some of these guys getting deals closed. So, you know, we're constantly looking at who the buyer pool is, and and I would tell you the in in real in real life term every day, you know, some groups that could be could have been buyers, you know, two months ago, today could be guys that just absolutely can't get a deal done. And so we've got to navigate sort of understanding who today in real time is qualified to close on that transaction. And we're seeing the good news is there's some new entries, there could be some family offices, we've got you know, our deals are we're dealing with what a much more diverse sort of buyer pull, but some of the some of the guys that have been there for a long time are probably not the guys that are gonna get a deal done anymore.

SPEAKER_00 16:40

Yep. So I want to rewind a little bit though. You mentioned private credit, you know, being a stretch in the market here, and I I think we talk about it, we know it, but maybe to take a step back here, I mean, as we think about the private credit market itself, it has become a very significant uh force within capital markets, right? So if we were to go back to you know financial crisis, majority of loans and credit that were formed were traditional bank loans. As a result of the financial crisis, we had a lot of regulation through the likes of Dodd-Frank, which restricted the bank's ability to get creative in how they think about underwriting loans. There lies the emergence of private credit. And you know, as we think about private credit today, it's morphed into about a three and a half trillion dollar pool of capital. And to Jeff's point, um, you know, private credit's been a big funding source for private equity um mergers and acquisitions activity, right? And on the other hand, so you have private credit here, and we we have had some hiccups in the earlier parts of 2026 here in Q1 with the likes of Blue Owl. Um, there have been some questions around software exposure with the emergence of artificial intelligence and what that means for a lot of these private credit funds that have significant exposure to the software. And I think we we saw as more or less a rationalization of some concentration across some of these key flagship private credit funds. Now we'll say I don't think we view that as a systemic risk, right? We don't see this as something where the market's going to implode because of this, but this could restrict the ability of private equity sponsors to effectively deploy capital. You know, to me, as I think about some of the issues that that come ahead, um, you know, no surprise, private equity has grown. I mean, markets for the last 20 years, we've seen this big shift from public markets to private markets. Right? Uh, I don't remember off the top of my head, but I want to say public markets have shed approximately 2,000 companies over the last seven years alone. We're seeing public markets shrink in size, but we're seeing this tremendous growth in private markets. Um, in fact, private equity today, I want to say they hold about 16,000 portfolio companies. And to me, I think one challenge we're gonna see here in the future is with limited MA specifically in the exit, we're gonna see a number of private equity sponsors rationalize with how do I deploy new capital and invest in new businesses that are attractive and accretive to my portfolio of companies versus how do I exit, right? Um, today that that ratio of portfolio companies to exits is about 11 to 1. So what we need to see here is a clear path to exit. And this isn't specific to car washing, this is private equity as a whole. But I think as we tie this back to car washing, it's gonna be a pretty interesting year ahead because we're seeing a number of sponsors here that are getting a little long in the tooth in their holding period, right? Private equity will typically hold you know companies for about five to seven years. And if we think about you know certain names within our industry and certain sponsors that have backs on these platforms, they're they're breaching that mark here. And I want to now tie this back to uh something that you just mentioned here, Jeff, which is family offices, right? I think as we think about attractive pools of capital go penetrate, family offices are a perfect match to the car wash sector, right? You need patient long-term capital because as we talked about in the past with Mr. Car wash, right? A big reason why Mr. Car Wash was a misfit for public markets is that within public markets, you are in the pressure cooker of a quarterly earnings cycle, right? It's very, very hard to be long-term thinking when you're worried about the next readout in earnings and what ultimately how you know the sell side's gonna respond to that. Um conversely, though, family offices, they're perpetual investors, right? They're long-term thinkers. They're not bound by a quarterly earnings cycle, nor are they bound by a five to seven year holding period in their in their fund. Um, I think that's one interesting area. I mean, do you agree, Jeff? I mean, are we seeing a lot of interest today from family offices in this sector?

SPEAKER_01 20:31

We're we're for sure seeing um more, we're getting in more and bound calls from family offices. And and it's interesting. The the there's there's some negatives and positives going on in the industry. The positive is that car washing as a as a whole is a good business. It's proving to be quite stable. You're seeing growth, you're seeing membership stability, um, you're seeing and and then you've got, you know, a bonus depreciation on the equipment. Um, I think you're seeing a lot of reasons why this is an attractive space for an investment. The the and the Chris's point, though, is the investment in it was was built around, you know, I call it private equity with short-term life cycles of of getting in and getting out. And that's where the that's where the stress is coming in, is some of these groups that started out early are long in their cycle and there's no and there's no clear path for an exit. That presents a problem for that buyer pool. That takes maybe a half or more of the groups out of the buyer pool that we're seeing. The positive side of it, because their car washers are performing on a long term basis, and the attractive tax benefit, we're seeing private, we're seeing family offices and new buyers. We're even dealing with some overseas groups that are looking at this space and saying, you know, we like the space. And so at the right entry point. So the good news is there is a I think there's right now there's plenty of the same. Plenty of good opportunities in inventory at the right entry point. This is a very attractive for investors. Um, but you've got to work a little bit harder at having a broader pool of who that who that buyer might might be and how that deal gets structured.