needle
New member
I hate rules of thumb(s). What are the current multiples (of cash flow / EBITDA) that full service washes sell for... Not including land costs.
Buying Full Service Wash .. Multiples???
- Thread starter needle
- Start date
jshepard
New member
jshepard
I dont know about a f/serve carwash, but as general rule, I would not pay more than a 1.5-2.5 multiplier. Every deal is different and you have to look at the complete package. The days of 4-8 multipliers, I think are history. Alot of businesses purchased like that over the years that I have seen either have not made it or are about to go under. Unless you have alot of cash and you want to throw it into an overvalued business the math will not work. As you know there could be exceptions, depending on if there are any potential upsides.
I dont know about a f/serve carwash, but as general rule, I would not pay more than a 1.5-2.5 multiplier. Every deal is different and you have to look at the complete package. The days of 4-8 multipliers, I think are history. Alot of businesses purchased like that over the years that I have seen either have not made it or are about to go under. Unless you have alot of cash and you want to throw it into an overvalued business the math will not work. As you know there could be exceptions, depending on if there are any potential upsides.
needle
New member
Wow...1.5-2X cash flow?? I was reading from some wash broker sites 5-6 is normal for the Full Service model.
jshepard
New member
How does that broker make his money? Commissions! All you have to do is "do the math". You are in this thing to make money, not work for free. The business market is just like the housing market, it is and has been overinflated with its prices. The market is tring to purge and adjust, if the goverment will just stay out of it. If I were you I would wait on buying anything. The bottom has not (in my opinion) hit yet.
Reds
Member
If free cash flow (EBITDA) was 100k and you paid 2x it would obviously be 200k price for a biz that earns you 100k. That's a 50% return on your investment. And on top of that try spending 200k starting any biz and making 100k/year back. I think those multiples are way too low. I just sold 5 restaurants for 5x earnings. That's a return on capital of 20%
Reds
Member
Regarding my post above, obviously a biz with poor earnings, poor facilities, and poor reputation is not worth 5x. As a matter of fact not worth anything.
Last edited:
jshepard
New member
jshepard
My reply was based on the intial post. If you pay 5 x $100,000 plus facilities you are going bankrupt. Did your restuarant sale include bldg/land? As I stated you have to look at the upsides, downsides, everyside. Not every deal is the same. I have seen (only) a couple deals that were worth a 7-9 multiplier, possible 10. Very Very few would go for 4-6, especially in this economy.
My reply was based on the intial post. If you pay 5 x $100,000 plus facilities you are going bankrupt. Did your restuarant sale include bldg/land? As I stated you have to look at the upsides, downsides, everyside. Not every deal is the same. I have seen (only) a couple deals that were worth a 7-9 multiplier, possible 10. Very Very few would go for 4-6, especially in this economy.
Red Baron
Active member
I'm not sure what "the norm" means anymore, but I think the numbers most bantied about for car washes is 2-1/2-4 GIM.
Reds
Member
I meant 5x earnings. period. The accounting firms like to use multiples of earnings + asset value. I look at it as purely a return on capital, weighing in whether or not the investment has to be actively managed or is a passive investment. In the case of the restaurants some were leased, some were ground leases, some were owned. In the case of owned and ground leased buildings the rent (NNN) was paid to me, in an arms length transaction, because I owned the facility personally. That built the cost of occupancy into the operating costs. No matter who owns the facility you have to pay for occupancy out of cash flow, so I believe it should be part of the operating costs.
Reds
Member
And I agree that multiples of 7 - 9 are not reasonable. But at the same time multiples of 2 or 3 for a profitalbe biz seem low to me. Everyone looks at this from a different perspective. Value, like beauty, is in the eyes of the beholder.
pitzerwm
Active member
IMO, its how long before I get my money back from what I am buying, not what I will do to increase revenue/profit.
P
Patrick H. Crowe
Guest
Dear Reds:
I do not believe value is like beauty, i.e. in the eye of the beholder. Beauty involves TASTE to a far greater extent that value. Beauty is more subjective than value.
What is needed for such discussions is a clear and precise definition of FAIR MARKET VALUE. If that is not agreed upon from the beginning then the discussion is almost pointless.
With this clear and widely accepted definition then a person can check to see what industry professionals have agreed upon for decades as the reasonable way to determine this FMV. The process is complex. It still allows for differences of opinion but within a clearly defined framework.
I wrote the Car Wash Appraisal Handbook. It took more than 100 pages to give the clear and widely accepted definition of fair market value and then to expalin in exacting detail how to use each of the widely accepted approaches to any appraisal problem. A full chapter deals with how to weigh the three approaches.
It would be nice if the question of value could be reduced to a few sentences in a posting. In my opinion the unusually large number of car wash bankrupticies we now see and the vast number of washes now on the market all attest to the fact that many folks simply paid far more than washes were worth instead of doing a slow and painstaking evaluation of Fair Market Value.
Simultaneously this means that opportunity is knocking for the wize and prudent buyer who does his homework in a slow and painstaking fashion.
Patrick H. Crowe
I do not believe value is like beauty, i.e. in the eye of the beholder. Beauty involves TASTE to a far greater extent that value. Beauty is more subjective than value.
What is needed for such discussions is a clear and precise definition of FAIR MARKET VALUE. If that is not agreed upon from the beginning then the discussion is almost pointless.
With this clear and widely accepted definition then a person can check to see what industry professionals have agreed upon for decades as the reasonable way to determine this FMV. The process is complex. It still allows for differences of opinion but within a clearly defined framework.
I wrote the Car Wash Appraisal Handbook. It took more than 100 pages to give the clear and widely accepted definition of fair market value and then to expalin in exacting detail how to use each of the widely accepted approaches to any appraisal problem. A full chapter deals with how to weigh the three approaches.
It would be nice if the question of value could be reduced to a few sentences in a posting. In my opinion the unusually large number of car wash bankrupticies we now see and the vast number of washes now on the market all attest to the fact that many folks simply paid far more than washes were worth instead of doing a slow and painstaking evaluation of Fair Market Value.
Simultaneously this means that opportunity is knocking for the wize and prudent buyer who does his homework in a slow and painstaking fashion.
Patrick H. Crowe
robert roman
Bob Roman
The summary appraisal report is not always the best way to determine the value of a wash. Appraisals have long been central to the fields of finance and law. Banks use appraisals as a tool to help determine how much money to loan. Appraisals are also offered up by lawyers as evidence of damages in various actions. However, the summary form can lose relevance for buyers and sellers if it doesn?t give proper attention to trends, capitalization and return on investment.
Appraisals use stabilized sales and profits. However, if all other factors are the same, a wash whose profits are declining is worth less than one whose profits are increasing. What happens to equivalency when an appraiser derives an overall cap rate by examining comparables involving facilities in different states or different types of facilities? Appraisers define the capitalized value as the value that would bring the stated earnings (stabilized earnings) at a specific rate of interest which is usually the current rate of return for investments with a similar amount of risk. However, common experience shows that the aversion to risk varies considerably by individual.
Buyers should evaluate the price of the wash on the basis of; can I make a decent salary; can I make payments to cover the cost of borrowing and; can I make a respectable ROI on the equity I put into the deal? If you can?t answer yes to these questions, the price is too high.
Appraisals use stabilized sales and profits. However, if all other factors are the same, a wash whose profits are declining is worth less than one whose profits are increasing. What happens to equivalency when an appraiser derives an overall cap rate by examining comparables involving facilities in different states or different types of facilities? Appraisers define the capitalized value as the value that would bring the stated earnings (stabilized earnings) at a specific rate of interest which is usually the current rate of return for investments with a similar amount of risk. However, common experience shows that the aversion to risk varies considerably by individual.
Buyers should evaluate the price of the wash on the basis of; can I make a decent salary; can I make payments to cover the cost of borrowing and; can I make a respectable ROI on the equity I put into the deal? If you can?t answer yes to these questions, the price is too high.
I totally agree with Robert. You need to ask yourself - 1. Can I pay my bills?; 2. Can I make a decent living?; 3. Is the the ROI based on my equity acceptable?. All too many times I see first time buyers get into "I know this wash is a loser but I can make it work" or "I can make more money than the current owner" so it is worth it to overpay for the business. Any price consideration should be based on current earnings, not what you think you can make.
Remember, this is advice to newbies, not experienced operators. I once worked for a car wash company that owned 38 washes throughout the country. At that time they had never built a wash. All of their washes were purchased from an existing owner. They did extremely well but they knew how to run a wash and could do a very accurate appraisal of what the business was worth and what they could make from it.
Remember, this is advice to newbies, not experienced operators. I once worked for a car wash company that owned 38 washes throughout the country. At that time they had never built a wash. All of their washes were purchased from an existing owner. They did extremely well but they knew how to run a wash and could do a very accurate appraisal of what the business was worth and what they could make from it.
Reds
Member
"Appraisers define the capitalized value as the value that would bring the stated earnings (stabilized earnings) at a specific rate of interest which is usually the current rate of return for investments with a similar amount of risk. However, common experience shows that the aversion to risk varies considerably by individual"
"Buyers should evaluate the price of the wash on the basis of; can I make a decent salary; can I make payments to cover the cost of borrowing and; can I make a respectable ROI on the equity I put into the deal? If you can’t answer yes to these questions, the price is too high."
Robert has hit the nail on the head -- make a "decent salary", "respectable ROI", "aversion to risk varies considerably by individual" are all subjective and they are some of the issues that make value like beauty.
"Buyers should evaluate the price of the wash on the basis of; can I make a decent salary; can I make payments to cover the cost of borrowing and; can I make a respectable ROI on the equity I put into the deal? If you can’t answer yes to these questions, the price is too high."
Robert has hit the nail on the head -- make a "decent salary", "respectable ROI", "aversion to risk varies considerably by individual" are all subjective and they are some of the issues that make value like beauty.
Last edited:
P
Patrick H. Crowe
Guest
Robert:
I'm not certain what you mean by a "summary" appraisal report. If this is some shortened version of an appraisal then I'd be very skeptical of it's usefulness.
I generally agree with the questions you want a potential buyer to answer. The question I have is what EVIDENCE does the potential buyer use to get realistic answers to these questions? In my view the evidence is the full appraisal of the business.
In my view when a potential buyer reads the full appraisal he/she will see the gross income for the last three, four or five years, certainly the last three. If the last three years show steady decline then the potential buyer and certainly the business appraiser takes careful note of this fact in the determination of fair market value. Moreover a careful look at the comps can offer the insight as to whether they are in decline - -though I admit some appraisals will not offer this information.
In short the answers to your questions can't be based on speculation. They must be based on EVIDENCE. In addition, since it is completely impossible to predict the future, a potential buyer who speculates about revenues in the future is apt to be very disappointed. All that can be determined with reasonable certainty is the Fair Market Value NOW - - as the definition of FMV makes clear.
In short a full appraisal is very useful evidence. As I explain in my appraisal handbook there is a recognized level of risk for nearly all businesses and certainly for car washes. This information is very useful if not mandatory not only in the determination of reasonable ROI but also for a potential buyer to compare his/her own risk tolerance to the inherent risks in car washing. Many buyers are unaware of how high the risk level is in car washing. The current number of failed washes makes that point very clear, does it not?
Patrick H. Crowe
I'm not certain what you mean by a "summary" appraisal report. If this is some shortened version of an appraisal then I'd be very skeptical of it's usefulness.
I generally agree with the questions you want a potential buyer to answer. The question I have is what EVIDENCE does the potential buyer use to get realistic answers to these questions? In my view the evidence is the full appraisal of the business.
In my view when a potential buyer reads the full appraisal he/she will see the gross income for the last three, four or five years, certainly the last three. If the last three years show steady decline then the potential buyer and certainly the business appraiser takes careful note of this fact in the determination of fair market value. Moreover a careful look at the comps can offer the insight as to whether they are in decline - -though I admit some appraisals will not offer this information.
In short the answers to your questions can't be based on speculation. They must be based on EVIDENCE. In addition, since it is completely impossible to predict the future, a potential buyer who speculates about revenues in the future is apt to be very disappointed. All that can be determined with reasonable certainty is the Fair Market Value NOW - - as the definition of FMV makes clear.
In short a full appraisal is very useful evidence. As I explain in my appraisal handbook there is a recognized level of risk for nearly all businesses and certainly for car washes. This information is very useful if not mandatory not only in the determination of reasonable ROI but also for a potential buyer to compare his/her own risk tolerance to the inherent risks in car washing. Many buyers are unaware of how high the risk level is in car washing. The current number of failed washes makes that point very clear, does it not?
Patrick H. Crowe
NewWasher
New member
I am new to this but I am seasoned in acquisitions on a larger scale. Although somewhat different for a small business, the parameters I have come up with are as follows:
1) I never consider anything with a ebitda to sales price multiple of over 4.
2) Just as importantly I never consider anything with a ebitda to revenue margin of less then 35%.
Unless you are paying cash the debt service has to be considered. Yes the interest expense is deductible and you are building equity but the equity growth does not help squat in a business (especially carwash) being able to survive. Try taking out a loan on your carwash equity as collateral. This is why the above 2 are critical to longevity and ability to reinvest into the business.
If one purchases a carwash that has a 35% margin and a multiple of 4...after debt service and taking into account interest deductions the adjusted profit margin becomes around 28%. So if your gross is 1,000,000 then you take home 280,000. Once you take your $50K salary the rest ($230K) can be used to pay back on your personal loan to the LLC that you setup that was used as down payment for the carwash...allowing the carwash and the LLC to break even. Assuming, of course, you structured the purchase that way. If you can live off of a $50K salary then your personal investment ($1 Million) will be paid back just after 4 years. Personally I need at least $50K salary and $70K drawl.
Car wash acquisition prices have inflated over the past several years but are coming down. I am starting to see a few fall into those parameters. You just have to play the numbers rather then get emotionally attached to the business.
Car washes are new to me so if anyone thinks the numbers are still on the aggressive side or flatout wrong please let me know your reasons why as I am using the above "formula" to purchase a car wash in the next 1-3 months.
Also: more failed washes mean more volume for the survivors. Not that I don't feel for anyone that fails of course.
Happy washing and thanks to all of you for such a wonderful resource of info right here on this site!!!
Thanks, Jay
Last edited:
smokun
Consultant - Rainmaker
Bob's comments seem to go to the core of the issue, but gloss over one important issue that might require a prospective owner to employ someone (say, Bob) who also has an acute appreciation of the industry and what it might take a new buyer to compete in today's marketplace... with the economic pressures of a traditional full-service car wash. That way, you combine the spreadsheet... with a face-to-face assessment of the buyer and his or her true capabilities and commitment.
Essentially, a prudent move would be for buyers to retain an expert who is savvy about conveyorized car washes... and has the skill to determine an accurate feasibility of "that particular car wash facility... with that particular layout... in that particular market location".
It has become a given that traditional full-service car wash operations have become a white elephant in most marketplaces, so the numbers offered may be FUBAR in terms of a sensible return on investment. Unfortunately, we have only seen the very beginning of car wash business failures predicated on poor planning and yesteryear methodologies. If the assessment process neglects to utilize available expertise within the industry, and ignores tomorrow's feasibility issues, the risks are significantly increased.
You need someone who can honestly tell you when to walk away from what appears at face value to be a wise investment. Whatever the fee for an insightful feasibility study, it's a bargain!
My suggestion: Hire Bob Roman...or somebody like him who truly knows what's going on. It's really cheap insurance.
-Steve
Essentially, a prudent move would be for buyers to retain an expert who is savvy about conveyorized car washes... and has the skill to determine an accurate feasibility of "that particular car wash facility... with that particular layout... in that particular market location".
It has become a given that traditional full-service car wash operations have become a white elephant in most marketplaces, so the numbers offered may be FUBAR in terms of a sensible return on investment. Unfortunately, we have only seen the very beginning of car wash business failures predicated on poor planning and yesteryear methodologies. If the assessment process neglects to utilize available expertise within the industry, and ignores tomorrow's feasibility issues, the risks are significantly increased.
You need someone who can honestly tell you when to walk away from what appears at face value to be a wise investment. Whatever the fee for an insightful feasibility study, it's a bargain!
My suggestion: Hire Bob Roman...or somebody like him who truly knows what's going on. It's really cheap insurance.
-Steve
robert roman
Bob Roman
I am familar with two types of business valuations.
1) Full appraisal of property and business which is labled, Summary Appraisal Report. I see this type of report when I review new projects and court cases.
2) Opinions of value which is labled, Business Valuation Report. I have produced this type of report to help people prepare for the buy/sell transaction. I have also prepared opinions for lawyers who were evaluating a partnership buyout.
Regardless of the type of report, the findings and conclusions are only as good as the quality of information that goes into producing the report. Bad facts and information usually results in bad evidence.
There are a number of things besides paying too much that can lead to a failed wash like; having an over-full fun meter (too much wine, women and song); absentee owner who doesn't properly market the business; local economic downturn (layoffs, plant closing, etc.); and more.
I believe the tendency to overpay is still primarily a function of the cash aspect of the business. I've seen investors jump on a conveyor wash at an adjusted profit margin of 15% to 20%, paying more than a multiple of 4. I wouldn't do it. I know investors who jumped on self-service washes with an adjusted margin of 10%. That's just crazy, paying higher than 4. Or am I missing something?
If you are disciplined enough to stick with 35%, a mulitple of 4, the owner's benefits you described and it works for you, God bless you. That's a sound strategy.
1) Full appraisal of property and business which is labled, Summary Appraisal Report. I see this type of report when I review new projects and court cases.
2) Opinions of value which is labled, Business Valuation Report. I have produced this type of report to help people prepare for the buy/sell transaction. I have also prepared opinions for lawyers who were evaluating a partnership buyout.
Regardless of the type of report, the findings and conclusions are only as good as the quality of information that goes into producing the report. Bad facts and information usually results in bad evidence.
There are a number of things besides paying too much that can lead to a failed wash like; having an over-full fun meter (too much wine, women and song); absentee owner who doesn't properly market the business; local economic downturn (layoffs, plant closing, etc.); and more.
I believe the tendency to overpay is still primarily a function of the cash aspect of the business. I've seen investors jump on a conveyor wash at an adjusted profit margin of 15% to 20%, paying more than a multiple of 4. I wouldn't do it. I know investors who jumped on self-service washes with an adjusted margin of 10%. That's just crazy, paying higher than 4. Or am I missing something?
If you are disciplined enough to stick with 35%, a mulitple of 4, the owner's benefits you described and it works for you, God bless you. That's a sound strategy.
needle
New member
Mr. Crowe- i like your approach. but what about land and building. the 4x doesnt include that. the wash could be on a goldmine lot so your approach would be 4x plus appraised value of land buildings. ?
