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Factors smaller operators need to consider in today’s market.
The current boom market in the car wash industry is not without risks, particularly for the smaller operators in the field. Ultimately, a major question looms over them as they consider planning for the future – Is this the best time to exit?
Every market now is being explored by some deep-pocketed group. The large companies that are securing multi-million-dollar financing deals and announcing plans to build hundreds of new locations are going to be moving into someone else’s backyard to do it. The bigger these players are, the more money they have to operate – and the more money they have to pour into sales and marketing. If you’re an operator, the minute that you see big brands come into your market and start scaling up with an imposing number of new sites you should be taking notice.
Everyone’s experiencing healthy revenue right now top line and bottom line, but when a competitor like that starts building nearby, you’re going to start losing a few hundred thousand of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Many operators who used to be very safe in their market are no longer so safe.
You’ve got well-financed competitors building at an aggressive clip, and it may be becoming clear to you that you’re going to have a difficult time to keep up. For owners with two or three locations, how do you survive when a regional or national brand floods the market with several times as many new sites? It’s hard to compete when a customer can use their membership at dozens of locations in the same market rather than just the two or three sites you’ve got.
If you’re an operator, you want to be able to control your own growth pace. You want to grow in a way that’s comfortable and makes financial and strategic sense for you. However, a large, wealthy competitor coming to your market can take that control away from you. Suddenly, it’s either grow or die. Fortunately, these larger operators also have a big appetite for getting big fast, and it may prove to be a prime opportunity for smaller operators to get a good price for everything they have worked so hard to build.
I see a lot of smaller operators who are trying to keep growing and time the market to wait to sell until they can get maximum value. I understand that approach. It’s possible that selling now means jumping off while the market has more to climb – and the value of your business has more room to grow. The potential risk, of course, is that you hold too long and become less valuable as you get overwhelmed by a larger entry to the market.
Another hurdle for those trying to build and keep up with the major players entering their market is that credit has become tougher to secure. A year or so ago, it was easier to go to your local bank, borrow money and keep building car washes. However, stung by the recession, those banks are becoming more conservative and concerned about potential losses. This particularly could cause trouble for smaller operators looking to invest in expansion without the backing of private equity or a larger, better-financed company. If they want to grow to compete, they might not find the money to do it.
Every operator is different, of course, with circumstances and characteristics that are unique to them and their market. Some operators may have the locations and brand loyalty to thrive even in the face of stiff, new competition. However, the upside of the current moment in the market is that this year on the whole may be the single best opportunity for a car wash operator to cash out and take their hard-earned wealth off the table. It’s definitely something to consider.
Jeff Pavone, Partner, at Amplify Car Wash Advisors, a national full-service car wash advisory firm. With a mission of creating wealth for clients, Amplify helps car wash owners sell, partner, or grow using practical industry experience as operators coupled with expertise in mergers and acquisitions, car wash sales, and capital advisory. Learn more atAmplifyWash.com