Case# 4: Car Wash Chain: Industry: PE Case Type: M&A Firm: Bain Concepts Tested Structure Creativity Math
Case# 4: Car Wash Chain: Industry: PE Case Type: M&A Firm: Bain Concepts Tested Structure Creativity Math
Case# 4: Car Wash Chain: Industry: PE Case Type: M&A Firm: Bain Concepts Tested Structure Creativity Math
Case Notes
Classic PE case focusing on analyzing target’s growth to justify acquisition. Most of the analysis will be based
on assumptions (market sizing), with some additional information given in an exhibit.
Question #1
What do you think is the size of the carwash market as a whole in the United States?
Solution
Estimates:
So long as the interviewee uses reasonable assumptions, any market size is fine.
Question #2
Give Exhibit 1: Look at the following slide on their existing 14 markets and competitors in those markets.
What do you gather from it?
Solution
• They have highest market share in about 10 of the 14 markets (all major cities) that they competed in and
within those markets, many have no significant competition from other national chains These could be
targets for continued expansion either via driving competitors out of the market or acquiring smaller
local chains.
• Potential follow up: What are the pros and cons of acquisition vs. building fresh?
• Another insight from the slide is that the chain is entirely concentrated in the Southeast and Pacific
Northwest, ignoring major markets in the Midwest, Mid-Atlantic, Northeast, and Southwest.
• Potential follow-up: What factors would you consider in selecting potential areas for expansion?
Question #3
What new products or services could the car wash company offer to grow their revenues?
Solution
Example solution
Most feasible/precedent:
• If they were not a full-service car wash, add additional services (wax, polish, undercarriage wash,
detailing, vacuuming) to the existing car wash line. Eg., install coin-operated vacuums in a self-
serve area after the car wash.
• If they don’t have it already, add a retail sales area to the car wash where customers can purchase
air fresheners, seat covers, convenience items, etc.
Medium feasibility/precedent:
• Explore adding a gas station or basic vehicle maintenance service (Oil changes, Tire replacements,
etc.) to some of their larger carwash locations.
• Pick-up and drop-off services
Least feasible/precedent:
• Install coin-operated hoses for a gated pet-washing area (compete with a service that Petco offers)
• Explore adding a franchise fast food restaurant like Dunkin Donuts or Subway
Question #4
After considering some of your ideas, the team has come up with the following information.
Solution
• People vacuum their cars half as often as they wash them when the price is $0.50
• Sub-Answer: Adding vacuums will result in additional revenue = $2M (or 5%=10% price*50%
frequency)
• (8M washes * 50% frequency * $0.50)
• Low frequency customers are willing to pay $3 for wax services, while High frequency customers are
willing to pay only $1 for wax services. Make them ask for the following information:
• Low freq: 10x/year; represent 25% of revenues
• High freq: 30x/year; represent 75% of revenues
• Sub-Answer: Adding wax services for $3 will result in add’l revenue = $6M
• $40M annual revenue * 25% = $10M from low freq. customers. At $5/wash, that’s 2M washes. 2M
washes * $3 wax = $6M
• Sub-Answer: Adding wax services for $1 will result in add’l revenue = $8M (or 20%, b/c everyone
will use it)
• ANSWER: Adding vacuums for $0.50 and waxing for $1 will only achieve 25% revenue growth in 1 year
Recommendation Rationale
• Based on our analysis thus far, we’ve identified • Target is market leader in several significant
opportunities to achieve 25% revenue growth. markets, yet is completely missing in several
This will be achieved by adding vacuum and major markets which could be significant growth
waxing services to existing locations. We feel opportunities
confident that, with further analysis, we can • Target could also continue growing in markets it
identify at least one more opportunity to close currently operates in, by buying out local
the final 5% gap that would justify the purchase competitors or driving them out of the market
of this carwash chain.
• Entering markets in which strong competitors • Research potential new markets to enter
exist could be tough • Dive deeper into existing markets to understand
• Driving competitors out of existing markets growth potential
could cause a price war • Discuss acquisition price
• Cost analysis of added services