Why We Love Investing in Car Washes 

Over the past decade or so, as Gen Z and Alpha enter the stage and Millennials age into middle adulthood, there has been a significant shift in consumer behavior, veering away from the traditional 'do it yourself' services towards a more convenient 'do it for me' model. This change is primarily driven by the seemingly ever-increasing demands on people's time, making them more inclined to outsource tasks like washing their car.


This trend is not just about convenience but reflects a broader economic shift. The car wash industry, often perceived as a mundane sector, with the notable exception of a car wash playing a major role in the hit AMC drama “Breaking Bad,” is increasingly emerging as an attractive avenue for both private equity and institutional investment.

The move away from home washing or using self-service bays is becoming more pronounced. Consumers are seeking out convenient, efficient, and high-quality car wash services, which is where businesses like Tommy's Express Car Wash, come into play. The industry's transformation is not just about convenience; it is about providing a service that aligns with the modern consumer's lifestyle and needs.


Other seemingly mundane industries, like self storage, saw early investors reap significant benefits. The transition towards professional car wash services is not just a trend but a burgeoning investment opportunity, recognized by savvy investors and institutional backers willing to support operations despite the hands-on nature of the business. The growing interest from private equity and institutional investors in the car wash sector further validates this trend.


Indeed, the trend for institutional capital to enter the market is accelerated by the tax benefits of investing in car washes. Unlike other real estate asset classes, other than land value, a large majority of the investment in car washes can be depreciated on accelerated schedules providing significant tax incentives to investors.


When we first explored the possibility of entering the car wash sector, there was an immediate sense of opportunity. As we looked deeper and engaged with various individuals and institutions, a realization dawned on us: the car wash industry is just beginning its journey. 


Reflecting on case studies, particularly those centered around the self storage boom, a recurring insight emerged from industry veterans: their only regret was not entering the market sooner.  Our conversations revealed real excitement about the sector's potential which was further validated by significant financial commitments from seasoned investors.

Tommy's Car Wash: An Industry Leader


Research quickly led our team to Tommy's Express Car Wash. The management has over 50 years of experience, expanding from 5 to 137 locations between 2015 and 2022, with projections targeting over 190 by the end of 2024. Their use of technology, such as license plate readers for subscription members, enhances customer experience and increases wash volume, making Tommy’s Car Wash’s capable of servicing 160-180 cars per hour.


We have partnered with one of their increasingly dominant franchisees, Olympus Pines, which currently operates 12 locations and plans to open 20 more by the end of 2024. Olympus Pines will soon be the largest Tommy's franchisee and Tommy's is already the largest franchisor of car washes in the country.


A key to Tommy's operational success is the real-time monitoring of equipment and detergent levels, ensuring that staff can rapidly respond to maintenance needs, thereby minimizing downtime. Tommy’s also utilizes a conveyor belt system to pull cars through their washes. This system, as opposed to the common chain and roller seen in most car washes, can be quickly replaced by on-site staff, which significantly reduces downtime in the event of damage. Not to mention, this system enhances the customer experience as it allows for a much easier transition when driving both into and out of the wash. These operational efficiencies are complemented by some of their unique value propositions, such as app-based memberships, proprietary systems for detergent management, and real-time business analytics, which collectively streamline the service process and improve the customer experience. Tommy’s efficient processes have enabled them to set car washing records for most cars washed in a year, month, week, day, and hour. 


Tommy's distinct architectural design, coupled with a low labor model requiring only 12 team members per site in total, with only 3-4 team members at any given time, maximizes throughput and revenue. Facilities are equipped with industry-leading equipment, including dual belt conveyors and robust drying systems, underlining our commitment to quality and efficiency.

Getting to Know Tommy’s


Founded in 1969 and remaining family-owned across three generations, the company evolved from a parts supplier to a franchising powerhouse. The entire family's induction into the Car Wash Hall of Fame underlines their significant contributions to the industry.


Their innovative approach, such as the "totally Tommy's white label" creation, allowed entrepreneurs to own and operate car washes under the Tommy's brand, ensuring consistent quality and operational standards.


This move towards franchising was a strategic pivot, inspired by the insight from the former CEO of McDonald's North America, who served on their board. He suggested franchising to maintain the high standards set by corporate Tommy's in all franchise locations. This advice paid off for Tommy's, leading to the establishment of Tommy's Express as the franchising entity and Tommy's Car Wash Systems as a global distributor of car wash parts.


Investment Thesis


Our focus is to capitalize on high-growth markets through the development of a comprehensive portfolio of express car washes. Our strategy, together with partner Olympus Pines, aims to aggregate a portfolio of 100+ Tommy’s Express Car Washes, leveraging the high demand among private equity institutions for large portfolios in this sector.


This approach is designed not for long-term holding but for a strategic build-and-sell model, maximizing investor returns through favorable exit multiples. Private equity's interest in the express car wash space is driven by the industry's substantial transformation in recent years, marked by the adoption of subscription models, the integration of advanced technology, and enhancements in operational efficiencies.


These developments have culminated in operating margins that are exceptionally competitive when compared to other industries. The equity fund aims to exploit these industry dynamics, focusing on the scalability of the express model and the inherent efficiencies it brings, to deliver substantial value to investors and stakeholders.


As this trend continues, the car wash sector is attracting attention from private equity and institutional investors, recognizing it as an emerging opportunity ripe for investment. The realization that we are only in the second inning of this thing signifies the nascent stage of this investment wave, akin to the early days of the self-storage industry boom.


Historical reflections on missed opportunities in similar booming sectors have spurred a proactive approach towards growth opportunities in the car wash industry.

Operational Excellence and Competitive Edge


red car with black bgWhen it comes to car wash operations, the devil truly lies in the details, distinguishing successful ventures from the merely mediocre. At their heart, these are operations businesses. Put another way, a private equity company sitting in New York cannot operate a car wash. Machinery breaks, employees call in sick, members have complaints, cars get scratched. Those are just a few of the hiccups the average operator will run into in daily business and that need to be handled effectively and efficiently.


These challenges also provide opportunities for those willing to put in the capital and sweat equity. This hands-on, detail-oriented approach to operations is what sets apart top-tier car washes like Tommy's when coupled with a team such as Olympus Pines. Unlike more passive investment opportunities, such as self storage which is much more hands-off, car wash operations require active and adept management to rise above the daily challenges that are part and parcel of the business.


The operational rigor involved in running a successful car wash is not for the faint-hearted. It demands a problem-solving mindset to manage the myriad of 'moving parts' — from machinery malfunctions to customer service issues. This is where the real value creation opportunity lies.


Financial Health and Growth Prospects


The financial landscape of the car wash industry has been marked by several notable transactions that underscore the sector's growth potential and investor appeal. Recent years have witnessed substantial investments, such as Warburg Pincus acquiring a car wash portfolio at a staggering 24 times EBITDA, and Tidal Wave being bought for 20 times EBITDA. These transactions highlight not only the industry's lucrative nature but also the high level of investor confidence in its growth trajectory.


However, the financial scene remains dynamic, with broader economic factors like interest rates influencing valuation multiples. Despite this, the industry has continued to attract attention, with valuations for groups owning 10+ washes currently ranging in the low teens multiple. This indicates a sustained investor interest, albeit with a more cautious valuation approach due to economic uncertainties.


A critical driver of the industry's financial health is the operational expertise of the entities involved. Remarkably, many successful car wash operations began as ventures by individuals outside the industry, such as doctors or dentists, seeking to diversify their investments. The allure of high returns is evident, with private equity groups offering substantial sums for well-operated car washes, demonstrating the potential for significant investment returns even for newcomers to the industry.


In an ever-fluctuating valuation landscape, some, including Olympus Pines, adopt a conservative approach, projecting valuation multiples between 14 and 16 times. This prudence ensures a balanced financial outlook amidst the industry's dynamic nature.


The convergence of high valuation multiples, the influence of macroeconomic factors, and the inherent potential for substantial investment returns collectively present a compelling case for investment in the car wash sector. As the industry continues to evolve, its appeal to investors seeking opportunities in a robust and expanding market segment remains strong.

Risk Management and Industry Challenges


tommy’s Express officeThe nature of the car wash business demands a high level of diligence and attention to detail. As noted, this is a very operational business. A lot of people have come into the space thinking they are just going to go buy a dozen car washes of different brands, but the reality is that many of those same operators struggle. Indeed, customer service and experience are paramount in the car wash business, with some locations serving up to a thousand customers a day. The diversity of customer interactions introduces its own set of challenges, with 50 to 200 people coming through a car wash in short periods of considerable activity. 


A critical aspect of managing these challenges is an emphasis on team quality and training. The philosophy of not just hiring anyone and preferring to leave a position open rather than filling it with the wrong person is vital. We like that Olympus Pines obsesses over every detail of operations and in doing so, hold their teams to a very high standard.


The competitive advantage in the car wash industry lies not just in the infrastructure but in the execution of service. Olympus Pines, and by extension Tommy’s, really develop their teams to think as though their role were one of hospitality. They are trying to get customers to come again and again; after all it is always cheaper to retain an existing customer than to connect with a new one. This relentless pursuit of operational excellence and customer satisfaction is what helps manage the risks and challenges inherent in the car wash industry, ensuring sustainable success and growth.


Tax Benefits and Financial Incentives


Investing in Tommy's Car Wash offers notable tax benefits, highlighted by aggressive depreciation strategies. The IRS's unique classification of car washes allows for significant upfront depreciation, enhancing the tax efficiency of these investments. Keep in mind that the tax code is always changing. At the time of this writing, the bonus depreciation on car wash assets is set at 60%. Just two years ago, however, it was 100% bonus depreciation on the asset and recent legislation is currently evaluating reinstating this back to 100%.


Moreover, the specific structure of Tommy's Express Car Wash investments accentuates these benefits. The car washes in our fund are eligible for aggressive depreciation benefits. We have realized losses/depreciation of more than 75% of invested capital within the first year a site is operational, outlining the substantial tax advantages available to investors once the locations become operational.


These tax incentives, coupled with the operational strategy to sell the portfolio in the short term, present a compelling case for investors looking for tax-efficient investment opportunities with a clear exit strategy. The distributions from the net cash flow of the car washes are treated as passive income, and the proceeds from an exit are treated as capital gains, offering a favorable tax treatment for the returns on investment.

Sustainability and Social Impact


As an organization, Tommy's Car Wash demonstrates a strong commitment to sustainability and environmental conservation through various initiatives. Their advanced water reclamation system, utilizing Rotating Bed Biofilm Reactor (RBBR) technology, allows for up to 90% of water to be reclaimed, substantially reducing consumption without compromising on quality.


This efficiency is significantly higher than the industry standard, highlighting our leadership in minimizing environmental impact. Tommy's Express car washes are designed to use a quarter of the water compared to at-home washing, ensuring that water and detergents are sent to sewage systems for treatment rather than causing runoff into the environment.


In addition to water conservation, the company prioritizes sustainable building practices, as evidenced by their LEED-certified facilities. These buildings incorporate efficient design, natural lighting, and other energy-conserving features, further underlining the company's dedication to environmental stewardship.


Beyond environmental efforts, Tommy's Car Wash plays an uplifting role in community development. They have a partnership with Water Mission, a nonprofit organization focused on advancing sustainable clean water solutions in developing countries and disaster areas, showcasing Tommy's commitment to making a positive global impact.


Tommy's Car Wash's approach to sustainability and community impact extends beyond mere operational efficiencies. The company's ethos, centered around creating value and maintaining ethical partnerships, reflects a broader commitment to long-term value creation and community engagement.

Tommy’s Car Wash: The Bottom Line


tommys-1The car wash industry, historically characterized by its lack of innovation, stands on the precipice of a significant transformation. The current landscape, dominated by overpriced services, inconsistent quality, and general unreliability, is ripe for disruption. Tommy's Express Car Wash is at the forefront of this change, not just as a market participant, but as a force for change, actively reshaping the car wash space.


Our strategy for investing in Tommy’s through our partnership with Olympus Pines hinges on addressing a rapidly growing market segment that seeks not just convenience but reliability and excellence in service. The approach is multifaceted: first, by integrating cutting-edge technology to streamline operations and enhance customer experience; second, by developing a robust subscription model that ensures recurring revenue and fosters long-term customer relationships; and third, by prioritizing customer service to elevate the entire car wash experience.


This approach to innovation and customer satisfaction positions Tommy's not just as a participant in the car wash industry but as a trailblazer, setting new standards and expectations for service and quality. As the industry evolves, Tommy's Express Car Wash is leading the charge, demonstrating that with the right mix of technology, customer focus, and innovative thinking, even the most traditional industries can be revitalized.