Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Quietly Buying Up Car Wash Chains
Transcript
- Lucas: If I told you that one of the fastest-growing categories in private equity right now is washing cars, would you believe me? Luna: I'd believe you, but I'd ask why. It's not exactly high-tech or high-margin on the surface. Lucas: Right. But look at the numbers. The U.S. car wash industry is about $14 billion in annual revenue, and it's been growing at a compound annual growth rate of roughly 4 percent for the past decade. More importantly, it's still incredibly fragmented — about 80 percent of car washes are single-location operators. Luna: So the classic private equity thesis: take a fragmented market, roll it up, add some operational discipline, maybe a subscription model, and sell for a multiple expansion. Lucas: Exactly. And the poster child for this is Mister Car Wash. They went public in 2021 via a merger with a special purpose acquisition company — a SPAC — valuing the business at about $3.7 billion. They operate over 400 locations across 21 states. But the story doesn't start there. Luna: Walk me through the pre ipo phase. Lucas: Mister Car Wash was backed by Leonard Green & Partners, a Los Angeles-based private equity firm. They first invested in 2014 when the chain had about 65 locations. Over the next seven years, they executed a classic buy-and-build strategy — acquiring regional chains like Champion Car Wash in Texas, Wash Depot in Florida, and multiple others. By the time of the IPO, they had rolled up more than 300 locations. Luna: And the SPAC route — that was interesting timing. 2021 was the peak of the SPAC frenzy. A lot of those deals have since cratered. How has Mister Car Wash fared? Lucas: Better than most. The stock is trading roughly where it debuted, maybe a bit below. But the business itself continues to grow. Same-store sales have been positive, and they've been adding locations. But here's the thing — the real magic isn't just rolling up, it's the subscription model. Luna: The unlimited wash club. I've seen those signs — $25 or $30 a month for unlimited basic washes. Lucas: That's the core. Mister Car Wash now has over 1.5 million active unlimited wash club members. That's recurring revenue with high retention. The average member stays for about 18 months. It transforms a transaction business into a subscription one. And in private equity, recurring revenue trades at a higher multiple than one-off service revenue. Luna: So the acquirer isn't just buying a car wash — they're buying a subscription base. Lucas: Exactly. And that's attracted a lot of other players. There's a firm called TPG Growth that backed a roll-up called Take 5 Car Wash. They've grown from a handful of locations to over 300. Another firm, Zips Car Wash, went public in 2022 via a SPAC. And there are numerous smaller regional roll-ups backed by mid-market PE firms. Luna: What about the economics of a single location? How does a car wash make money? Lucas: A typical express car wash — the tunnel kind — costs about $2 million to $4 million to build, including the land. The variable costs are relatively low: water, electricity, chemicals, labor. The big cost is the real estate. So location matters tremendously. The average unit economics are solid though — EBITDA margins can be 30 to 40 percent if you have high volume. Luna: And volume depends on location, population density, traffic patterns. It's almost like a fast-food restaurant model. Lucas: Very much so. In fact, a lot of car washes are built on the same pads that used to be fast-food or gas stations. The real estate is already zoned for auto use. And the subscription model smooths out the seasonality — members pay whether they wash or not. Luna: That's the part that interests me. Because if you're a private equity firm, you can underwrite the acquisition based on the recurring revenue stream rather than just transaction volume. Lucas: Right. And you can also cross-sell. Some chains are adding interior detailing services, headlight restoration, even oil changes. It's a platform play. One deal I saw was a $50 million acquisition of a 15-location chain in the Southeast — the buyer said the valuation was justified by the subscription base alone. Luna: That's a lot of faith in customer retention. If people cancel their subscriptions, the math breaks. Lucas: True. But the data suggests retention is strong. The average churn rate for unlimited wash clubs is around 5 to 7 percent per month. That's comparable to gym memberships. And once a customer is in the habit, they tend to stay. Plus, the cost to acquire a new member is relatively low — you just offer a free first wash or a discount. Luna: It's interesting how private equity has turned washing a car into a recurring revenue subscription. I never thought of it that way. Lucas: And that's the theme of this show — PE is finding these overlooked, unsexy businesses and applying financial engineering and operational improvements. Car washes are just the latest example. Luna: Before we go further, I want to pause for a quick note. You know, these conversations take a lot of research and prep — and the only reason we can keep them ad-free is because of listener support. Lucas: It's true. If you've gotten any value out of these episodes — even one useful insight for your work — a couple of dollars a month genuinely makes a difference. You can find us at buy me a coffee dot com slash fexingo. Luna: Yeah, it's that simple. No tiers, no perks, just helping us keep going. And now back to the car wash story. Lucas: So one of the interesting wrinkles is the environmental angle. Car washes actually use less water than washing at home — typically about 40 gallons per car versus 100 gallons for a driveway wash. And commercial washes are required to treat and recycle wastewater. So there's a sustainability story here too. Luna: That's a good argument for municipalities that might otherwise restrict new car wash development. And it's something PE firms can use in their pitch to regulators or community boards. Lucas: Exactly. Now, not every roll-up succeeds. There's been some failures. One example: a company called Splash Car Wash, backed by a PE firm, tried to grow too fast in the Northeast and ended up in bankruptcy in 2023. They overpaid for locations and didn't integrate the operations well. Luna: What went wrong specifically? Lucas: They acquired several small chains but didn't standardize the equipment or the software. Each location had a different point of sale system, different membership management. They couldn't get a unified view of the customer base. And they took on too much debt — the interest payments ate into cash flow. It's a cautionary tale. Luna: So the integration piece is as important as the acquisition strategy. Lucas: Critical. The best operators, like Mister Car Wash, invest heavily in a centralized technology platform from day one. They also have a dedicated real estate team that evaluates each site for traffic counts, demographics, and competitive density. They're not just buying any car wash — they're buying the right ones. Luna: What about the competitive landscape? Are we seeing any new entrants? Lucas: Yes, a new player called EverWash has emerged as a sort of white-label subscription platform. They partner with independent car wash owners to offer a membership program without the owner having to build the tech themselves. It's a way for the little guys to compete with the big chains. Luna: That's clever. So instead of private equity buying them, they're arming them with a subscription tool. Lucas: Exactly. It's a different kind of consolidation — not of ownership, but of the customer relationship. EverWash has raised venture capital and is signing up hundreds of independent washes. It's a race: the PE roll-ups are buying the locations, and the tech companies are trying to own the customer data. Luna: Who do you think wins in the long run? Lucas: I think both models can coexist. The pe backed chains will have scale advantages on procurement and real estate. The tech platforms can offer flexibility to independents. But the real winners will be the ones with the lowest customer acquisition cost and the highest retention. That's where the subscription analytics matter. Luna: So what's next? Are we going to see a car wash mega-deal — a merger of two large chains? Lucas: I wouldn't be surprised. The top five chains control maybe 15 percent of the market. There's plenty of room for consolidation. And as interest rates stabilize — we're in mid-2026 now, and the rate environment is more predictable than it was two years ago — the cost of debt for acquisitions becomes more favorable. I expect to see a few blockbuster deals in the next 12 months. Luna: Any specific names we should watch? Lucas: Mister Car Wash could be an acquirer themselves — they have a strong balance sheet and their stock is a currency. Also, look at the publicly traded car wash companies: Zips, and a smaller player called WashTron. Any of them could be targets for a larger PE firm looking to enter the space. Luna: It's fascinating how a business as simple as washing a car has become a chess game of financial engineering, real estate, and subscription data. Lucas: That's private equity in a nutshell. They take something mundane and turn it into a machine. And as long as people keep driving cars, there's money to be made.