The Five-Year Cycle: Reading the Map of Car Wash M&A

The car wash industry has seen a massive shift over the last half-decade as consolidation reshapes how businesses operate and sell. In this episode, we dive into the history of these market changes and what they mean for the future of the sector. Understanding the dynamic growth of the past five years is essential for any owner or investor looking to stay competitive. We explore the factors that turned the car wash into one of the most attractive assets for private equity and strategic buyers. 

What You'll Learn: 

• The driving forces behind the five-year consolidation boom
• How historical industry trends impact today's valuations
• Strategic considerations for business owners thinking about selling
• The evolution of market dynamics in the car wash space

If you're wondering whether the current market climate favors a sale or continued growth, this episode provides the historical context you need. #carwash #business #consolidation #entrepreneurship #acquisitions

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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_00 0:00

Today, I really wanted to explore kind of just the history of consolidation within the car wash sector. It's been pretty dynamic five years or so in car wash MA activity. With the emergence of the subscription model in car washing, we saw private equity really enter this space. We saw the landscape around consumer behavior and car washing shift dramatically. The resurgence of activity all focused more on discipline and the fundamentals of the car wash business. And again, our perspective, I think that's setting up a very healthy longer-term runway for car wash consolidation to come. And uh, you know, today I really want to explore kind of just the history of consolidation within the car wash sector. Um, if you're in the industry or close to the industry, to no surprise, it's been pretty dynamic, you know, five years or so uh in car wash MA activity. And you know, really we've we've lived through at this point three distinct regimes or cycles in car wash MA. So I wanted to spend a little time today dissecting these regimes, some of the drivers of MA activity, where we've been historically, but more importantly, provide a roadmap where we see car wash MA going forward here at Amplify Capital Group. Uh so with that, let's go ahead and dive right into it. Um, you know, really as we think about car wash MA and just the car wash landscape in general, you know, we really saw the express car wash segment specifically scale meaningfully throughout the what's called the 2010s timeframe, with the first generation of professional car wash operators consolidating their regional footprints. And we didn't really see PE enter this space meaningfully in earnest until roughly that 2018-2020 timeframe. And a lot of the key drivers of interest amongst private equity sponsors uh was really predicated on this secular shift encompassing both the consumer but also the economic model behind the car wash sector. So starting first with this consumer, uh, we saw the landscape around consumer behavior and car washing shift traumatically. Uh, mid-1990s, International Car Wash Association, they provided some really interesting stats around this, but for the most part, the consumer in the 1990s were a do-it-yourself consumer. In fact, an overwhelming majority of the consumer base were driveway washers, right? Um, I want to say it was somewhere about 60% or so of consumers were washing in their own driveway. Now, if we flash forward to the 2010s, we saw a significant shift where now an overwhelming majority of consumers use professional car washing services. In fact, that number is breached about 90% of consumers today. And within that subset, uh, most of the consumers actually identified the express car wash segment as their service of choice. Now, a big reason for that quality and convenience. Specifically, convenience as we think about the express car wash segment. We saw the emergence of the unlimited subscription model, which offered consumers, you know, nice, fast, easy, and convenient way to access their car wash facility and do so in unlimited fashion, where they pay one monthly subscription fee and they can wash as many times as they want. From a private equity perspective, that unlocked a new economic opportunity in that we now have a very substantial recurring revenue base on top of what's already exceptional unit level economics. So we think about what a high quality express car wash uh business looks like. You know, you have average unit volumes north of $2 million per store. That translates to roughly $1 million in EVIDAR per location. And with the emergence of unlimited subscriptions, uh, again, a high-quality express car wash business today represents 75% membership penetration. Or in other words, 75% of the revenue generated from that car wash business is from their unlimited subscription base. And as we think about why recurring revenues are so important, it offers greater stability and predictability in the financial performance of the business. And we all know that there's that direct relationship between risk and uh excuse me, risk repeatability and what that means for valuations. So, with the emergence of the subscription model and car washing, we saw private equity really enter this space in full in that 2018 through 2020 time period. In fact, as we look at 2020 through 2022, which is really that first regime of car wash consolidation, we like to refer to this as the land grab era. At this point in time, there are nearly two dozen different private equity sponsors that have entered the car wash sector. Um, everybody from you know Susquehanna behind uh love car wash, you have Access Holdings, um you saw Wildcat Capital get involved in the mix, uh, Golden Gate Capital, Red Dog Equity, Imperial, New Mountain Capital. Uh, you saw a tremendous amount of activity amongst the private equity community entering into the car wash sector. So many new entrants, and the big focus at this point in time was building density. And a big, big driver of this was low borrowing cost, and then you had scarcity value, which drove up multiples significantly. Uh, we have some data here at Amplified Capital Group as we look at that 2021 through 2022 time period. 2021, there are about 63 notable transactions within the car wash sector representing the exchange of 390 or so locations. 2022, we saw that number balloon significantly. Uh 102 distinct transactions across 521 different locations. And because of the scarcity value in the sector, right, highly fragmented industry, predominantly uh mom and pop operators, and again, you have the entrance of private equity. We saw multiples uh just skyrocket in 2022. In fact, if we were to look at acquisitions across you know four or more sites, uh multiples on average were about 17 times EBIDAR in 2022. So again, we had this flurry of activity. Uh, again, land grab, if you will, at this point in time. We've saw a number of private equity sponsors get into the business, and given scarcity value in the car wash sector, those multiples expanded substantially. So this really captures that first era of consolidation, right? The land grab in that 2020 through 2022 timeframe. Now, flash forward to 2023. Um, from the first half of 2023 to 2025, uh, probably the most notable macro event was the extraordinary pace of interest rate hikes by the Federal Reserve. Uh, we started seeing some early signs of inflation in 2021, 2022, getting into 2023, in order for the Federal Reserve to combat inflation, they took their benchmark rates from near zero. Uh, the target rates were about zero to 25 basis points in 2023, uh, all the way up to 525 basis points in July, or excuse me, in February 2023. So literally, if you were a consolidator of car wash assets, and let's say you borrow at SOFR plus 5%, your borrowing cost in 2022 is roughly five and change. Um, now you flash forward to 2023 with the Fed setting their benchmark rate of 5.25%, your borrowing costs literally doubled within one year. So you have a higher cost of capital regime, and in addition, you had this indigestion of new car wash units that were put online. Uh, we have some data that would suggest that the pace of de novo expansion of new builds in the car wash sector uh were around 900 units a year. So as you think about that, you have a glut to new inventory, you have rising cost of capital, and you really had some poor capital allocation decisions that were made by some of the sponsors that were aggregating car wash assets in that 2020 through 2022 time frame. So at this point in time, we saw acquisitions go on hold. We call this really kind of the era of uh of indigestion in the car wash sector. So you had rising costs of capital, you had a tremendous amount of uncertainty on the economic front, right? With the Fed increasing rates at such an aggressive pace to combat inflation, the natural assumption was then that the consumer would suffer by way of a recession. So at this point in time, we started to actually see some of the early signs of stress in the car wash sector. Uh, you had driven brands divest their take five car wash portfolio. And in the first quarter of 2025, you saw VZIPS file for chapter 11 bankruptcy. Um, you saw Mr. Car wash stock price after a really successful IPO trading about $22 a share, uh dropped to below $10 a share and actually got to the point where that stock was trading below the replacement cost. So, really as we think about 2023 through that first half of 2025, you know, kind of a little bit of a dark cloud sitting all over the car wash sector. Now, what happened last year really was that, in our opinion, the start of a new regime in car wash MA. And a lot of this was fueled by a couple of positive developments on the macro front. First and foremost, you had signs of what appeared to be this proverbial and mystical soft landing in the Federal Reserve, right? Can the Federal Reserve in a calculated fashion increase interest rates in a way that stems inflation, but does so in a way that doesn't sacrifice the broader economy? And we actually started to see signs that this was in fact true in the second half of 2025, right? Uh inflation numbers, especially core inflation, and the Fed's preferred measure of inflation started to moderate uh within their target range. And we actually saw some really positive developments on the GDP front. Uh really healthy economy, low unemployment, very strong and resilient labor force. And as such, we actually started to see some signs of this soft landing. But the rubber really meets the road here as we look at what happened in July of last year, and that was the one big beautiful bill act. And what this did was really unlock a new pool of capital around car wash real estate. On that topic of car wash real estate, um, one of the biggest sources of arbitrage, if you will, for private equity sponsors that were consolidating car wash assets was the sell leaseback model and really using that real estate as a source of off-balance leverage, off balance sheet leverage to blend down their multiples in the car wash acquisition. Right? If you're in the car wash business, you know that car wash real estate is a single-use piece of real estate. Most car wash operators that are independent, uh they operate and they own their real estate. And what this allowed private equity sponsors to do, they could come in, they could buy a business, let's call it for a low double-digit multiple, they could take that real estate, they could carve it out, separate opco and propco, sell the real estate to a triple net REIT, and in exchange for the capitalization of that real estate, convert that tangible asset and balance sheet to long-term rents. Unfortunately, in the era of low borrowing cost, uh, a lot of these groups that were growing at a tremendous rate were a little undisciplined with how they thought about the real estate as a part of their portfolio. And what they did is they exchanged real estate for very expensive rents that the business could not sustain. And this is a big source of the stress that we saw with the likes of Chapter 11 filing for zips, right? They really had a rent problem on their hand. And the only way they could effectively reset their rents were to go through the Chapter 11 process. Uh, while they've successfully emerged, um, you know, really what it did is it put a little bit of a pause in the sell lease back activity across the car wash market, especially the institutional triple nets that had an abundance of car wash real estate in their books. And what the One Big Beautiful Bill Act did in the second half of 2025 is it brought really the private investor to the car wash market because the one big beautiful bill act restored bonus depreciation in full. Um, so rewinding on that one a little bit in 2016, uh, by way of the Jobs Act under the first Trump administration, this expanded uh essentially allowed for the depreciation or the accelerated depreciation of car wash equipment. We all know that the car wash business, it's capital intensive. Every new build has around a million and a half dollars worth of car wash equipment in that tunnel. And what the Jobs Act did in 2016 was allowed car wash operators and car wash uh businesses to accelerate and write off all of that expensive equipment that they put into their car wash tunnel. So an immediate tax benefit. However, bonus depreciation as a part of the Jobs Act of 2016 had a phase out, and we saw that stepping down meaningfully in 2025. However, with the one big beautiful bill act, that restored bonus depreciation in full into perpetuity. And what this did is it allowed a tax advantage to a lot of private investors. So as a result of this, we actually saw significant demand in car wash real estate, and we saw a flurry of sell lease back activity in 2025. And again, a lot of this was unlocked by the one big beautiful bill act and the restoration of bonus depreciation. In addition to that, uh, we saw a lot of groups in 2025 really kind of pause and reset on consolidation and MA activity and focus on what matters most in this business, which is operations. Uh, so a lot of groups press pause in 2023 to 2025, focus on stabilizing their operations, integrating all the new units that they've acquired in that you know, let's call it that first regime of car wash consolidation. And now that that is that's set the stage for a much healthier environment. So we're seeing right now a resurgence of activity. Um, other notable events in the timeline of just car wash MA and activity here uh on the capital markets front. Earlier this year, we saw Mr. Car wash announce that they were going back to the private markets. Uh, we all know Mr. was you know the big first big IPO with a pure play car wash company. And unfortunately, you know, public markets really a misfit. Um, despite being a perpetual pool of capital for Mr. Car wash, you know, it's really hard to create value in the lens of a quarterly earnings cycle, right? Value creation in the car wash business spans well beyond quarter to quarter. It's longer terminature. And again, it all focuses back on the capital intensity of the business to operating intensity. Um, and despite you know, really good unit level economics for Mr. Carwash, you know, they were really prohibited from participating in full with a creative MA just given where multiples were in private markets. So, as such, a lot of Mr. Carwash's growth was by way of de novo expansion. De novo expansion, again, capital intensive, but also slow to get units built and slow to get new units ramping. So as a result, EPS stagnation really put a ceiling on Mr. Carwash's stock price. We saw the stock price uh nosedive, trading you know, below $5 a share there at one point in time. Um, however, earlier this year, Mr. Carwash announced that Leonard Green was going to take the company back to private markets at a $7 per share tender offer. And the reason why I think this is really positive is you know, Mr. Carwash set an arbitrary ceiling over what car wash MA multiples would look like. Um, you know, it's really hard for uh a sponsor-backed roll-up strategy to acquire assets at 12x when Mr. Carwash is trading at 7x. So what this is doing now is it's kind of taking a really, in our opinion, poor comp out of the public domain, bringing back into private markets. But what's really exciting is you're gonna have now a 500-plus unit operator back on their front foot. So I think as we look at this current regime here, a lot of we're seeing in the activity that we're working on in kind of car wash MA and our roles advisors in this sector is again a resurgence in MA activity, but all punctuated by extreme discipline. Everybody now is back onto fundamentals, so we're seeing a much more discipline in both operations and car wash MA. And in my view specifically, you know, I think we're in the earlier stages of a healthier next cycle, which is driven less by speculation and more focus on fundamentals and discipline. And we're seeing a lot of groups using this as an opportunity to really, you know, still pay a healthy multiple in acquiring car wash assets, but it's with extreme focus. And that focus is usually around, you know, infilling their current core markets, um, expanding geographically to adjacent geographies, uh, but again, less speculation, more focus on quality over quantity. And I know that's a very overused term uh in today's world as it relates to describing car wash MA, but that couldn't be closer to the truth. So, you know, again, just to summarize here, we've really seen over the last five years just a really dynamic environment, car wash MA. Uh the first, you know, first portion, the first regime, or the first one-third that 2020 through 2022 time frame. Again, a land grab. A lot of new entrants in this space, low cost of capital, a flurry of MA activity, and you couple that with scarcity value in this sector, we saw multiples balloon. From 2023 to the first half of 2025, we saw a substantial pause as we had dynamic capital markets driven by rapidly increasing interest rates and some stress in the car wash sector with the likes of zip and drip driven brands. However, in the second half of 2025, we saw a positive macro landscape. Uh, in fact, you know, the Federal Reserve reversing course and becoming a little bit more dovish in their policy, coupled with some positive and some favorable tax policies by way of the one big beautiful bill act, as well as just broader discipline from operators in the sector, drive what is now a resurgence of activity, all focused more on discipline and the fundamentals of the car wash business. And again, our perspective, I think that's setting up a very healthy and longer-term runway for car wash consolidation to come. So, with that, you know, want to thank everybody for joining uh in this episode of Behind the Business. My name is Chris Jenks. Uh, for any more information or follow up, feel free to join us at our website at www.amplifycapgroup.com. And until next time, see you soon. Thank you.