PE firms love businesses that generate recurring revenue, especially those that offer consumer convenience. Take car washes for example. Here’s what dealmakers have to say about this sector. 

“The express car wash sector remains a very attractive sector defined by recurring revenue from a membership model and a service that provides a tremendous price and value proposition for consumers,” TSG Consumer Partners Managing Director Michael Layman tells Mergers & Acquisitions. “As consumers experience the simplicity and convenience of membership, the car wash will become a necessity.” 

The U.S. car wash services industry was estimated at $15.21 billion in 2022 and is expected to grow at a compound annual growth rate of 5.7 percent up to 2030, according to Grand Review Research.

The car wash industry is not known for large buyouts because, like much of the lower middle market, scale is challenging. However, the industry remains attractive to private equity firms because car washes are cheaper to build out with more one-time equipment costs and it is less labor intensive compared to other real estate-related sectors like restaurants, making them potentially lucrative businesses. Unlike many other sectors, deals are happening in this sector. 

Earlier in March, Oaktree Capital Management-backed Whistle Express Car Wash acquired two locations from Detrick’s Car Wash and another one from Splash Car Wash. Whistle operates over 100 car washes and plans to add 50 more by the end of 2024. Howard Lo, a managing director at Trinity Capital, a division of Citizens, says there is no longer a stigma associated with express car washes. Years ago, they were not favorable to consumers because they damage cars and do not clean them as well. The technology has improved since then, and although they are not as thorough as full-service car washes, the quality has increased. And for busy consumers, they enjoy how quick they are, and for owners/operators, they require less labor. 

“At a true express car wash, there’s not a lot of people on site at any given time, usually less than five,” Lo says. “That’s part of the reason the margins are so good in this express wash business because you don’t have that labor concern.” 

Another deal announced in March: Garnett Station Partners-backed Flagstop Car Wash acquired three sites in Richmond, Va. and has since converted them to the Flagstop brand. Flagstop plans to reach over 25 locations by 2025. 

“We believe the shift to do-it-for-me car wash will continue for many more years as washes are made more convenient by being built closer to consumers’ homes,” Layman says. He adds that this translates into an opportunity for TSG’s Super Star Car Wash “to open locations in underserved areas and to provide a better experience than our competitors.” 

Super Star Car Wash has operations in Arizona, California, Texas and Colorado and Layman says the company is always “evaluating acquisitions and new store growth in other proximate markets.”  TSG invested in Super Star Car Wash in 2021. 

“We expect acquisitions will become constrained to the best operators who can grow the revenue of acquired washes through higher membership sales and delivering an improved consumer experience,” Layman says.

Reach Layman at: 415-217-2300

Reach Lo at: [email protected]