The Wall Street Journal recently published an article about why private equity (PE) companies are acquiring car wash businesses. The article says the strategy is to bundle them (with certain other types of small businesses), grow them, and then sell them down-the-line at a multiple of what they paid. Okay, but …
Why car washes? And, is there a way YOU can invest on a smaller scale, using similar thinking? Let’s look deeper, and THEN apply some of their approach to other small franchise businesses. Why franchises? That’s a different article in this blog!
One big reason PE likes the car wash space is the recurring revenue from selling unlimited-wash memberships. Next, the business model leverages its labor productivity through innovative automation and technology. Also, the unit economics are attractive: The margins are outstanding once the car wash hits “full speed” beyond the start-up phase. The WSJ article says some car washes serve 800 customers a day! Moving on from car washes … what else is there?
Strong Business Fundamentals
Pat Swisher, the Founder and former CEO of Enviro-Master, often speaks of the revelation he received from his mentor while evaluating business investment opportunities. His mentor (Erskine Bowles) identified a number of important business fundamentals that were present in one particular concept. Those fundamentals overshadowed lesser factors in the other option he was exploring. Things like popularity, vertical industry, visibility, or how “sexy” the brand is portrayed – aren’t nearly as important as they may seem. What ARE some of the business fundamentals of Pat’s former business? Consider these:
• Provides recurring revenue
• Recession Resistant
• Provides recurring revenue
• Technology can’t make it obsolete (i.e. NOT a Blockbuster video store!).
• Has little to no competition
• Has a large potential customer base
• Is not capital intensive
• Scalable (with ease and a high ceiling)
That’s Interesting, but Are There Other Industries Where These Apply?
Interesting indeed, but NOT EVERY business needs to have all of the above business fundamentals to be wildly successful. Nevertheless, think about how some of these directly apply to a number of other types of franchise businesses. Here’s just a few:
• Home services: Maintenance / repair / upgrade
• Boutique fitness / Beauty / Hair care
• Health and wellness.
• Education.
• Pets (yes, the pet industry GREW during the last recession, and spiked to new levels during COVID)
• Auto repair
• Senior / home healthcare
• Staffing
• AND others!
Is it YOUR Turn to invest this way?
Does this thinking sound intriguing to you? If so, I can help! Whether you’re interested in a semi-absentee venture, or you’re ready to make a career change, franchise business ownership can be a great investment. Reach out to me, and we’ll start YOUR discovery journey!
To your success!
