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private equity investors flood express car wash industry

When Mr. Car Wash debuted on the NYSE last summer and its shares rose above its $15 IPO price of $22.40-49—many private equity players took notice and took action, either by investing more in car wash brands By seeking to add car wash operators they already own or own to their portfolio.

Last year, for example, private equity entered the car wash industry, with Imperial Capital acquiring Riptide Auto Wash, Wafra acquired Motor City Car Wash, and Skynight Capital adding Hypershine Car Wash to its portfolio. .

Today, these private equity-backed car wash operators have a rare opportunity to establish themselves as leaders in a highly fragmented space, where approximately 75 percent of car wash companies operate only one to two sites. Mr. Car Wash, for example, is the largest car wash operator in North America with approximately 400 locations nationwide. Prior to its IPO, it was also private equity-backed: Leonard Green & Partners LP had owned the company since 2014.

While most private equity-backed car wash operators have aggressive takeover targets, their expansion plans also require the development of thousands of locations. Furthermore, development activity is not limited to one geographic area.

“When we look at the size of our industry, we look at supply and demand,” says John Lai, chairperson and CEO of Mr. Car Wash. “Despite inflation and rising gas prices, we believe the relative affordability of our service, along with the pleasure that customers get from keeping their cars clean, has created a strong tailwind for expansion.”

To be clear, private equity firms are not investing in do-it-yourself car washes with open bays, soft washes attached to gas stations, or full-service car washes. They are interested in car wash companies that own express washes, also known as tunnel washes or conveyer washes. These locations are almost fully automated, require very little labor and use conveyor or belt equipment to move vehicles through the car wash process. Most offer do-it-yourself vacuums, and some even offer optional detailing services.

According to Grand View Research Inc., the express car wash market is valued at approximately $11 billion and is expected to expand at a compound annual growth rate of 4.0 percent to 4.8 percent by 2028. Conveyor car washes are consistently the most profitable in the car wash. In the US, where more than 72 percent of drivers use professional car wash services, an average of 13 times per year.

Mr Car Wash has invested in its development team to continue its greenfield development activity. This year, the company plans to open 30 stores, up from 17 that were opened in 2021. Ultimately, Lai believes there is an opportunity to take the company to over 1,000 units. “We continue to reset our set high watermark [for development],” Lai says. “We tend to go to about one store a week, which we think is a good sweet spot for us.”

New revenue model transforms the industry

Although no research firm has established the exact number of Express Wash locations, industry experts estimate there are around 10,000 locations. To put that in context, there are over 15,000 Starbucks in the United States.

“Car washes grew from not being on the private equity radar to the forefront of nearly every firm,” says Geoffrey Jarvis, co-founder and CEO of Mint Eco Car Wash. “They all want to be in the industry in some way or another, which means there are billions of dollars flowing into the sector at the moment.”

Mint Echo has benefited from that interest: The West Palm Beach, Fla.-based company recently raised $50 million from a family office that’s known for taking a generational investment approach. The company leverages capital to acquire and develop a car wash in Palm Beach County for up to $150 million.

“It’s a race to get sites because everyone is looking for the same type of real estate,” says Jarvis, adding that initial plans for Mint Eco include 20 washes before the end of 2024 and 50 washes in Palm Beach County before 2030. portfolio is included.

Part of what makes the express car wash business so attractive to private equity firms is an emerging operating model that offers dual revenue streams: one-time visits and a membership or subscription program that offers unlimited washes for a monthly fee.

Mint Eco has adopted a subscription model. Its growth strategy is to provide its customers with convenient access to services through Wash’s sophisticated network throughout Palm Beach County. Customers joining Mint Eco’s Unlimited Wash Club will have multiple locations to redeem their services at no additional cost.

“It’s not unheard of to have 5,000 customers for a single location,” says Chris Donner, vice president of development, and when you do the math, even on the low-cost package of $20 per month, that’s a yearly There’s $1.2 million in guaranteed revenue.” Mammoth Holdings, which operates 90 express car washes in 16 states under multiple brand names, including Wasatch Express and Shine-N-Go.

Competition for major sites

Given the highly automated nature of express car washes and the entry of so many new brands, it is incredibly difficult for operators to differentiate themselves. That’s why expansion operators are focusing attention and money on finding the best locations, building attractive buildings, and providing unique car wash experiences. Depending on market and land prices, the cost of a new car wash is at least $5 million.

“The express carwash model is a volume business, and the biggest marketing tool is the signage on the building itself,” says Brent Andrews, co-founder of Wybe Investments, which launched Pink Bird Car Wash in January 2022. That’s why we’re very focused on the quality of our retail real estate locations.”

The Pink Bird Car Wash facility emphasizes design and hospitality-driven operations and features retro Florida branding. The company, which is backed by Dallas-based Montgomery Street Partners, currently has two locations under construction in West Palm Beach and plans to build at least 20 units on Florida’s east coast from Broward to Brevard County. It is actively looking for sites with left-in access and strong retail co-tenancy in high-traffic locations.

Mammoth Holdings’ growth initiatives are funded by Atlanta-based private equity firm Red Dog Equity LLC through its partnership with Tom Pritzker’s family business interests (advised by The Pritzker Organization). The company is actively looking for development sites of at least three-quarters of an acre with high visibility, strong entry/exit and preferably high-profile co-tenancy.

“We look for prime real estate, and we’re willing to pay for it,” Donner says. “We’re competing with the Chick-fil-As of the world. We’re paying millions of dollars per acre for our real estate. We don’t want to go to town and fly a flag anywhere, because that means We can outrun a competitor.”

Mint Eco’s Jarvis is also looking at competitive car washes, not just those that exist today, but those that will exist in the future. The company is investing significant resources into creating “beautiful” exteriors with signature streetscapes that include locally sourced landscape installations designed to provide comfort to clients and improve the look and feel of the surrounding community.

Working with Kevin Probel of commercial real estate services firm CBRE, Mint Eco has secured six properties for development and is pursuing more than 300 existing car wash and development sites in Palm Beach County.

Jarvis explains, “Ten to 20 years from now, we know the number of car washes is going to double, so I’m thinking about how we can win when someone builds a competitive carwash next to us. ” “The only way we can do that is if we focus on our brand and culture, and that includes a different real estate strategy.”

New car wash makes good neighbors

While express car wash operators have won over the private equity world, the same cannot be said for property owners, municipal leadership, and retailers. Many of them still stick to the old notions of car washing.

“Ten or 15 years ago, the car wash industry had some black eyes on whether you wanted one of those on your retail corridor,” says Russell Reynolds, CEO of Spotless Car Wash Brands, which was acquired by private equity firm Access Holdings. Was.” in 2020. “he changed.”

Mammoth Holdings’ let the negative outlook soften. As real estate professionals and city leaders learn more about today’s express car wash brands and the way they operate their businesses, they may at least consider the idea of ​​selling a pad site or outparsal to a car wash operator. Willing to entertain.

“I’m working with a national home improvement retailer right now, and they’re trying to get us as many of their 1,200 locations as possible,” Donner says. “They think our customers and their customers are the same customer and that they have synergy if they can put us in their parking lot.”

Donor is also in talks with a national grocer with more than 1,000 locations, which is interested in selling some of its additional parking mammoth holdings to develop a new express car wash. So far, companies have identified 100 opportunities.

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