The Basics Growing through acquisition comes with major benefits – you’re getting a built-in customer base with a store that is generating revenue versus buying a closed laundry or building a new one with no customer base. Another advantage is that because the existing location is a laundromat, the infrastructure is already there and upgrades (i.e. plumbing and electrical) are less expensive than starting with a vanilla shell. Obviously, as you look at existing laundromats to acquire, you’ll want to consider equipment condition, age, and the technology capabilities of the machines – will this be an immediate retool or is the store utilizing fairly updated models? Survey the overall condition of the facility – is it dated and just in need of TLC or are there major improvements needed to make the laundry attractive to new customers? Don’t forget the obvious question – why is the owner selling? Is this a case of a longtime owner looking to retire or are there a ton of issues (including declining revenue) at play? Did a new store open in close proximity and take business? Bottom line: know the market. What’s the Value? Value can be a contentious process as buyers and sellers arrive at a measure that makes sense. A multiple of gross revenues can seem an easy figure to work from, but it doesn’t factor in expenses. The more common approach in determining the value of a store is multiples of yearly EBITDA. Earnings Before Interest Taxes Depreciation and Amortization (EBITDA) is a measurement of cash flow. It takes all revenues and subtracts the majority of expenses. Owners typically take the yearly EBITDA and multiply it between three and six to value the location. A variety of factors will drive what multiple is used (i.e. age of equipment, condition of store, demographics, lease term).
Don’t forget to look at the current lease for the store – obviously, the longer the base term the better. And having options to extend the term is optimal. A change of ownership (or possibility of one) offers a precipitating event to chat with the landlord and negotiate new terms. Finance Thoughts Getting prequalified is a great way to show a seller you are ready to move. If they are looking to sell and entertaining multiple offers, just like in the home-buying world, an offer from a prequalified buyer is going to rise to the top. Consider if a retool makes sense. For instance, with some Speed Queen financing programs, rolling an equipment retool into the acquisition note will bring a lower interest rate and lower required downpayment on the purchase of the laundry. Because of a lower down payment, you’ll have additional cash to make improvements to the location. Speed Queen’s acquisition retool program will enable you to finance up to 80 percent of the acquisition and retool, versus 65 to 70 percent for just an acquisition. In addition, with a combined acquisition/retool, you benefit from a longer term, which lowers monthly payments. Final Thoughts Growing your business through acquisition can be a cost- effective means of expansion in your market. The key is arriving at a price point that makes sense for both parties, and from there, doing the due diligence work, and leveraging financing that reduces upfront expenses, while lowering monthly payments.
Uncertain economic times always seem to bring additional interest in our industry. Volatile markets and businesses that struggle during economic downturns are solid catalysts for the exploration of laundromats as safe havens. What that can mean is greater competition for new locations, which can slow owners’ expansion plans. This is where growing by “acquisition”, acquiring existing opened and operating laundries, can be the best course of action. In addition, some financing programs for such growth can further speed up the process and be more cost effective than you’d think. Growing Through Acquisition
To learn more about acquisition financing through Speed Queen, visit here or contact your local Speed Queen distributor.
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