Mister Car Wash shares rose about 37% in their trading debut Friday, marking a strong start for the only pure-play car wash company to hit U.S. public markets.
The Arizona-based company’s initial public offering priced overnight at the low end of a proposed range of $15 to $17 a share. The company sold 31.25 million shares to raise $468.8 million, at a valuation of $4.44 billion. The stock is trading on the New York Stock Exchange under the ticker “MCW.”
BofA Securities, Morgan Stanley, Goldman Sachs and Jefferies were lead underwriters in a syndicate of 12 banks.
Chief Executive John Lai said the company’s
secret sauce is the emphasis it puts on its employees, on turning jobs into career opportunities, on paying competitive wages and benefits, including training, and in simply treating them well. The company’s IPO documents offer as a mission statement, “inspiring people to shine,” which Lai said means at least as much as the vehicles they clean.
“We believe in the power of positivity, when happiness goes up, we get a better quality of customer service,” Lai said in an interview with MarketWatch.
The company is profitable and revenue is growing. It posted net income of $24.6 million in the quarter through March 31, up from $8.86 million in the year-earlier period. Revenue rose to $175.5 million from $155.3 million. In 2020, it generated net income of $60.4 million and revenue of about $575 million. The company only offers car washes, after selling off previously owned lube shops.
“We believe in doing fewer things well,” said Lai.
Proceeds of the deal will be used to pay down debt. Mister Car Wash is majority owned by private-equity firm Leonard Green Partners, which acquired the company in 2014 from ONCAP, the midmarket buyout arm of Toronto-based Onex Corp.
That has left the company with about $1 billion of debt, which it expects to roughly halve. Lai said the company expects its debt ratio to stand at about 2.5 times, once the deal closes. It generates enough cash to easily cover its debt service costs and thanks to a loyalty program called the Unlimited Wash Club (UWC) with 1.4 million members, more than 60% of revenues are recurring.
Leonard Green will own about 79% of the common stock once the deal closes, meaning individual shareholders will have little to say in the running of the company.
Mister Car Wash has 344 locations across 21 states, according to its IPO prospectus, and has washed 59.6 million cars in the year through March 31. The company’s immediate plans are to increase penetration in those places and grow share in existing markets.
“We see the unique benefit of the network effect. When customers have 15 stores in one metro area and can have their car washed at any one of those locations due to UWC, the value goes up,” said Lai. “That’s emboldened us to expand in those markets.”
But he conceded there are are clear market gaps in certain states including California, where he sees strong opportunities in markets including the Bay Area and southern Los Angeles.
The company is currently enjoying strong secular tailwinds, in the form of strong demand for cars as COVID restrictions are rolled back, and he expects that to continue. The biggest risk the company faces is in scaling up.
“What keeps me up at night is that trying to double or triple our footprint over time, we make sure we continue to raise standards and not grow too quickly,” he said. “When things start to wobble, the quality of the customer experience starts to diminish. Many companies have grown faster than they can support.”