Future of Carwash Mergers and Acquisitions

As we enter 2025, the focus in the M&A market naturally turns to speculation about what the future holds. As someone involved in investment banking, I have seen the excitement of a booming M&A market and the caution of a quieter one. Over the past few years, the carwash industry has experienced both extremes while operators have persisted through operational challenges, maintaining their profitability.

Looking back, M&A activity in the carwash sector surged from 2019 to 2022, with private equity firms and family offices investing over $10 billion in the industry. These deals often commanded high market multiples due to the appealing qualities of carwashes such as their fragmented nature, strong financial performance, recurring revenue model, low labor requirements, tangible assets, and essential service offering.

Since the start of 2023, there has been a noticeable slowdown in deal-making. This can partly be attributed to a drop in public market valuations, affecting buyer behavior. Additionally, rising interest rates have made acquisitions more costly for buyers and limited their capacity to finance deals. Some larger operators have now shifted towards building new locations rather than acquiring existing ones, leading to a decrease in deal activity.

Although activity has tapered off, transactions are still taking place, especially those with growth potential and good financial performance. The past couple of years have seen innovative deal structures like sponsor-to-sponsor transactions and minority stake sales become more prevalent.

Looking ahead to 2025 and beyond, there is a sense of optimism for a resurgence in M&A activity within the carwash industry. Several factors contribute to this positive outlook, including an improving economic landscape, the proven success of the carwash business model, the ongoing fragmentation of the industry, and a favorable outlook for private equity involvement.

From a macroeconomic perspective, 2025 looks promising with lower interest rates, a healthy job market, rising CEO confidence, and potential regulatory reforms that could stimulate economic growth. These favorable conditions provide a supportive backdrop for increased M&A activity in various sectors, including the carwash industry.

Overall, despite some recent slowdowns, there are strong indicators that the carwash sector is poised for increased deal-making in the coming years, offering opportunities for growth and expansion for operators and investors alike.