Beyond the Multiple: Hidden Factors Driving Car Wash Valuations with Jeff Pavone の全文書き起こし

looking at trends to see if their numbers are going up or down. 00:05:07.680 --> 00:05:10.480 Um they're gonna be making sure everything matches. 00:05:10.639 --> 00:05:21.920 Uh every I would say the majority of the deals that are gonna close today, whether it's two car washes or a hundred, go through a quality of earnings, which is a third-party accounting firm that's gonna go through your numbers. 00:05:22.079 --> 00:05:25.839 Um, they're gonna go through a legal diligence, they're gonna go through insurance diligence. 00:05:26.000 --> 00:05:38.399 So that that process and and and managing that process, you know, we've got a team on at Amplify that that takes and holds holds someone's hands on that part of it because it could be exhausting to go through that process. 00:05:38.480 --> 00:05:46.560 And and so what's really required to provide and and and what's an ask, you know, uh takes a little bit of experience in navigating. 00:05:46.720 --> 00:05:58.240 But but I would say, you know, be prepared because the the the amount of preparation that you should have up front will make that that deal uh getting that deal done much much more efficient going going forward. 00:05:58.319 --> 00:06:05.120 But it's going to be it's a bit tedious, but deals will close, assuming you know, everything is uh as reported. 00:06:10.240 --> 00:06:28.720 Yeah, I mean I I I can only tell you I think the big biggest mistake and it hear it all the time is the you get an owner that's pr that's going to be uh called by multiple buyers, whether it's direct a private equity group direct, or it could be a broker calling on behalf of a buyer. 00:06:28.879 --> 00:06:38.160 Um and and again, and I would say the better the the better your chain, the more calls you're probably gonna get, especially if it's a market that's desirable. 00:06:38.319 --> 00:06:42.399 And and going down a path with one buyer is the single business biggest mistake. 00:06:42.560 --> 00:06:47.040 You know, A, you you never know sort of what your what your car wash is really worth. 00:06:47.199 --> 00:06:49.680 You know, somebody can give you that guidance and tell you that. 00:06:49.759 --> 00:06:59.360 But but if you had if you've got something of quality and you had multiple bidders on it, you'll know exactly what what your what your what your car washes are worth, what your business is worth. 00:06:59.600 --> 00:07:04.639 The other thing is it's it doesn't allow for putting pressure on that buyer to perform. 00:07:04.800 --> 00:07:13.600 So if you got a buyer that's going down a path, and let's say that he's going on a path and he's got some something comes up in diligence and he wants to renegotiate with you. 00:07:13.839 --> 00:07:22.000 Well, if you had a backup buyer, you know, it's it's kind of easy to sort of you know say, you know what, we're okay with with moving on. 00:07:22.240 --> 00:07:28.639 Or but but if you're going down the path with one buyer, you could be spending a lot of time, don't know if it's gonna get done. 00:07:28.720 --> 00:07:30.720 Uh, and it's just an exhausting process. 00:07:30.879 --> 00:07:35.199 More than more than likely I see those deals fail than succeed. 00:07:35.360 --> 00:07:46.480 So if you're going to make a decision to sell, I'd say the biggest biggest decision you're gonna make is then do it the right way, prepare your company, and then go out and run a run an efficient process. 00:07:46.639 --> 00:07:49.600 Um so you really make sure you have a great outcome. 00:07:54.639 --> 00:07:58.879 Yeah, I mean, I I think red flags, you know, start with, I mean, there's a few things. 00:07:59.040 --> 00:08:01.680 One, it's it could be just trends of numbers. 00:08:01.839 --> 00:08:08.000 So if your numbers are trending down, you know, month over month, year over year, you know, that's a problem, right? 00:08:08.079 --> 00:08:08.720 And why is that? 00:08:08.800 --> 00:08:12.079 Is that because you have encroachment from competition? 00:08:12.319 --> 00:08:14.399 Is it uh just the way you're operating? 00:08:14.560 --> 00:08:22.240 I mean, so they they will dig in, and I would say the pro the number one red flag for any any deal is just numbers that are consistently trending down. 00:08:22.399 --> 00:08:24.720 So they get they will dig and try to figure that out. 00:08:24.879 --> 00:08:40.879 You know, I I think secondly, you know, separately, it's it's being being under being able to understand from a diligence process when you give somebody financials, they can give you a an offer, sign in an LOI based on your numbers that you've given them. 00:08:41.039 --> 00:08:48.320 But the red flag is when they start digging in and realize that uh maybe the numbers aren't exactly as represented, you're gonna you can have a problem. 00:08:48.480 --> 00:08:52.159 Now, the other thing is just I would say red flags become adbacks. 00:08:52.320 --> 00:09:01.519 You know, you know, we've done a lot of business, so we've got to understand what is a what is a standard adback that's going to be accepted industry-wide. 00:09:01.759 --> 00:09:03.440 Uh we can we can talk through it. 00:09:03.600 --> 00:09:12.000 If you've got an adback that you just start taking, you know, you know, as you look at maintenance, let's say your car wash site, so we don't well that's a corporate adback. 00:09:12.159 --> 00:09:12.960 We'll pull it out. 00:09:13.120 --> 00:09:21.200 We can, you know, you just gotta know what's acceptable from an adback and what's not, because it's material to driving the what your bottom line looks like. 00:09:21.360 --> 00:09:28.320 Uh, you know, maybe another area that of concern, red flags, is any any potential liability or risk. 00:09:28.480 --> 00:09:34.639 So you gotta understand that when when the the today's environment, there's a margin of error is so small. 00:09:34.799 --> 00:09:41.039 Like so when these buyers, when you look at the cost of money being where it is, their their margin of error is not

very high. 00:09:41.200 --> 00:09:47.200 So they're looking at this and saying, okay, you know, what risk is is in this deal? 00:09:47.360 --> 00:10:00.720 And so if you have any potential, let's say you got some nagging lawsuits sitting out there, or you've got some un you know, unhappy employees, or you got whatever that risk might be, you need to realize they're not buying risk. 00:10:00.799 --> 00:10:04.559 They're gonna give you an offer based on buying a a well-run quality company. 00:10:04.720 --> 00:10:13.759 And if you got risk, that that's that's gonna be a red flag potentially blowing up your deal, unless you can figure out um how to how to get that make that problem go away. 00:10:18.960 --> 00:10:25.360 Yeah, I mean, I I would say anybody sitting on the fence, and you know, and again, I'm an operator too, so we've got a cars chain. 00:10:25.519 --> 00:10:28.720 And and and I'm sitting I'm sort of sitting on a fence as well. 00:10:28.799 --> 00:10:30.000 And so what am I looking at? 00:10:30.080 --> 00:10:34.720 I and I think the the today's market deals are getting done in closing. 00:10:34.879 --> 00:10:42.960 So at least there's a window now that we're seeing that's an environment that is uh I would say friendly for a seller to get a deal done. 00:10:43.200 --> 00:11:07.360 You know, I I think if if if the buyer is waiting for the optimal time to sell and you know he's up there in age and and he needs to get something done, I can I can I can't tell you what next year brings because the the the this business is so fickle, it could be driven by inflation goes up, which will drive up interest rates, changes all of a sudden uh the buying habits of of of the buyers today. 00:11:07.519 --> 00:11:12.559 And so we've we've had windows where the markets completely collapse and it doesn't take much. 00:11:12.720 --> 00:11:17.440 You know, the war uh the war in Iran, you know, you know, one minute it's settled, one minute it's back on. 00:11:17.519 --> 00:11:28.480 You know, so if gas prices, you know, start going up and consumers feel stretched and you start losing members, I mean there's a lot of things that can go wrong that can all of a sudden change the mindset of the buyer. 00:11:28.639 --> 00:11:43.039 Today I would say we've got a we've got an active buyer that'll buy quality, uh, again, discipline, but still buying, you know, when we get into next year, I I just there's nothing, there's nothing that's going to prepare us for what what what we don't know. 00:11:43.200 --> 00:11:45.200 And that's sort of the risk that you have to look at. 00:11:45.279 --> 00:12:00.159 And so if you are an owner and saying you're okay with being in this business for the next five or ten years, and and you and that window of opportunity of selling in in uh in the next year is is a is is you don't care about. 00:12:00.320 --> 00:12:03.759 It's just if somebody's gonna give you the right offer today, then don't worry about it, right? 00:12:04.000 --> 00:12:08.639 But it's for the guys that really are looking saying, we want to be out of this by a certain time. 00:12:08.799 --> 00:12:14.159 I I don't see I don't foresee multiples going up anytime soon. 00:12:14.320 --> 00:12:29.840 I I don't I don't really I don't foresee multiples going up anytime, you know, in the in the near future at all, because unless unless interest rates or something materially changes to drive that that return, because it's all this is all return driven, right, for the for the buyer. 00:12:30.080 --> 00:12:31.840 Private equity needs a certain return. 00:12:32.000 --> 00:12:34.159 And so, you know, what what's going to change that return? 00:12:34.240 --> 00:12:39.360 It's gonna be things like you know, expenses and cost, interest rate being one of the biggest ones. 00:12:39.600 --> 00:12:42.000 We just don't see that moving anytime soon. 00:12:42.159 --> 00:12:56.320 So I would I would say as a seller, if there's a horizon where they feel they they really need to be out by within a reasonable but in the short term, then now's probably as good as any because we can't we can't predict what's going to happen next year. 00:13:01.440 --> 00:13:03.759 Yeah, I mean it um interesting. 00:13:03.919 --> 00:13:30.559 I think the the 26 um and when you look at you know kind of where we're at now, I mean twenty twenty-five was was kind of really slow for for the for the first three quarters, and all of a sudden the fourth quarter, we started seeing real momentum from the buying community saying, we're interested in coming back and and and they're willing that to they got their capital in order, they're they're they they got their lines of credit, they're ready to go, and then all of a sudden you got the the water hit, right? 00:13:30.720 --> 00:13:39.120 So it was that that gotcha that we're just we don't know how to predict for, and that kind of slowed the the car wash MA market down for the first half of the year. 00:13:39.279 --> 00:13:43.600 You weren't seeing very much activity getting done in that first half of the year. 00:13:43.759 --> 00:13:58.080 All of a sudden, you know, we've seen a very robust third quarter, and you know, and we started seeing some really high quality deals closing, and and we expect that you know that'll that'll follow through for the rest of the fourth quarter for the for the next quarter. 00:13:58.320 --> 00:14:06.240 Beyond that, we just we just don't know what we don't know, but today, you know, we're we're sitting in a pretty good spot and we think deals will get done. 00:14:06.399 --> 00:14:15.519 Um so you know that's really the biggest change right now is I think we're sitting in a place where buyers want to get deals done unless something gets in their way. 00:14:20.559 --> 00:14:22.639 Yeah, I mean, another another great question. 00:14:22.720 --> 00:14:33.600 When when people you know ask us, you know, you know, you know, we we need to get a certain number, we need to make sure we can

we're you know, we don't want to waste our timing out the market for a long time. 00:14:33.679 --> 00:14:43.120 And I and I think that's you know, like a w the way a broker process tape works is you normally take it, you get a listing, they take six months, and you know, they've got this thing that's dragging on. 00:14:43.279 --> 00:14:55.840 I can tell you the our process is the way they work is usually, you know, we're putting a a really high quality book together, and you know, because our team's experience, it that typically can take two weeks to 30 days, and we're out to market, right? 00:14:55.919 --> 00:14:57.759 We're going out and we've got a buyer list. 00:14:57.840 --> 00:15:03.919 We've already know within reason who that buyer's going profile is gonna look like for your your business. 00:15:04.080 --> 00:15:08.639 You know, and and then I would say within 30 days, we're gonna know what the appetite is. 00:15:08.879 --> 00:15:14.399 You know, we're you know, we go out and we literally give 30 days to get sort of indication of interest. 00:15:14.639 --> 00:15:23.200 And I think as a seller, I would tell you within six days of you committing, you're gonna have a pretty good idea whether or not you've got an opportunity to sell or not. 00:15:23.360 --> 00:15:24.480 And then you make a decision. 00:15:24.639 --> 00:15:36.000 That decision might be saying, you know what, we might be better off waiting a year to go back out to market because we want to really get some things fine-tuned or get our ramping sites up. 00:15:36.159 --> 00:15:40.720 Um, but that that decision can be made fairly quick in the process. 00:15:40.879 --> 00:15:46.399 Um, or if the process is going well, at the end of 60 days, you'll have a pretty good idea of who the buyers are. 00:15:46.559 --> 00:15:54.799 And then that thing get competitive, and within 90 days, you should be under LOI with the with the buyer of your of your company. 00:15:54.960 --> 00:15:58.480 And you know, I'd say nine another 90 days from there to closing. 00:15:58.559 --> 00:16:16.240 So this from start to finish, I would say the process is about six months, but within 60 days, I can tell you pretty close whether or not the buyer appetite is going to be meet your expectations, and you can decide whether you want to stay the process or or navigate to another time. 00:16:21.519 --> 00:16:35.279 Yeah, I mean, uh you know, any any owner that that is now considering selling, and I mean, I I mean, first off, the things I'd watch out for, right, would be if you know, there are markets that used to be sacred, right, where nobody would build on. 00:16:35.440 --> 00:16:47.679 You know, I was uh talking to somebody out of Washington, and you know, all of a sudden, you know, they're seeing competitors pop up stores, and these are markets that typically have had you know little uh competition coming up from private equity. 00:16:47.919 --> 00:16:56.639 Today you gotta you gotta know that from a seller standpoint that you know private equity is is is looking at new white space. 00:16:56.799 --> 00:17:07.200 So they they built and saturated the southeast and the southwest, you know, now they're looking at the northeast, they're looking at the Midwest, they're looking at, you know, you know, other markets on the West Coast. 00:17:07.279 --> 00:17:22.720 And so so what I'd say is an owner, you know, what you got to be looking at is first is if you start seeing encroachment coming, you know, now it you're you're already a bit a little late, but but I would say I wouldn't wait until they got five more stores up to decide you're gonna sell. 00:17:22.799 --> 00:17:24.799 I'd be moving as quickly as possible. 00:17:24.960 --> 00:17:29.920 You know, secondly, I'd have a well-organized um set of books. 00:17:30.079 --> 00:17:33.279 And so your financials and books and records should be clean. 00:17:33.440 --> 00:17:35.839 You should have a good accountant that's working on it. 00:17:35.920 --> 00:17:38.480 Um they should be able to match your sales reports. 00:17:38.640 --> 00:17:50.799 I think, you know, if you're working with an advisor or somebody, understanding what what it what an acceptable adback is, because as an owner, you might be in the you might be doing things for your personal benefit running a business. 00:17:50.960 --> 00:17:52.079 A lot of people do. 00:17:52.319 --> 00:17:58.720 And so now you've got to more institutionalize your books and records to say what what is a buyer really gonna look and pay me for. 00:17:58.880 --> 00:18:03.839 And so just I'd say getting getting a good accountant, getting understanding from a legal perspective. 00:18:03.920 --> 00:18:08.240 If you're going to sell, you know, at some point you're going to need to engage in in in a law firm. 00:18:08.319 --> 00:18:16.880 And I would say one of the mistakes people use is the lawyer that got them, their their real estate attorney, is not the same guy you're going to use to sell your company. 00:18:17.039 --> 00:18:18.720 It's going to be an MA attorney. 00:18:18.880 --> 00:18:24.079 So I'd say you may want to start understanding, you know, what does that team need to look like? 00:18:24.240 --> 00:18:41.680 Uh, you know, from your operating side of it, you know, everything you can anything you can do to sort of take yourself out of being the dancing bear in a room, you know, if they if your whole business depends on you, if you're managing every bit of your business, you know, that sort of becomes hard to replicate, right? 00:18:41.920 --> 00:18:47.759 So what what companies are looking to pay for is somebody a company that can be scaled and put gas on and grow. 00:18:47.920 --> 00:18:51.759 And ideally you've got a team in place that's gonna stick around. 00:18:51.920 --> 00:19:00.720 Uh and you're and they can they can go on without you unless unless you're selling off and going to bring in an investor who's gonna stand behind you and your team. 00:19:00.880 --> 00:19:06.960 But I'd say just having having having that that that part of it in order is gonna be important. 00:19:07.200 --> 00:19:22.799 Um and then like I said earlier, you know, understanding if you've got any potential um liabilities or think problems out there, you know, I try to get those resolved as soon as possible because the problem with with a buyer is they just don't know how to underwrite risk. 00:19:22.960 --> 00:19:25.279 So they over they over-underwrite it. 00:19:25.359 --> 00:19:35.279 So if it's a a potential claim that might be, you know, two million dollar claim, they may, you know, they may underwrite it at$5 million just because they're going to be conservative. 00:19:35.359 --> 00:19:41.359 So anything that's got a potential risk or problem, I'd say try to deal with it up front and and clean it up.