Private Equity Sector Focus

Red Dog Equity LLC is an Atlanta-based PE firm executing a roll-up play in an industry, car washes, that escaped private equity consolidators’ notice until about a decade ago. Now Red Dog is rolling up car wash businesses across a broad swath of the country through their platform company Mammoth Holdings LLC.

They buy one company in each regional market to function as the brand name for that market, then bolt additional smaller and often less efficient and cheaper acquisitions onto it, integrating them all into Mammoth’s business model, which emphasizes selling subscription memberships with which customers can get unlimited car washes (and the company can create a steady revenue stream).

Another interesting aspect of Red Dog’s roll-up strategy is sale-leasebacks, in which an acquired car wash’s real estate is sold, then immediately leased back from the new owners. The effect is to make the acquisition significantly cheaper upfront. This strategy seems to be working well and is likely to attract imitators, though Mammoth is fast entrenching itself in a strong position.

According to the article, it now operates 107 car washes and is aiming for 500 by 2025, a goal made possible by the fact that it is also building entirely new locations. In the article, Jeff Leko of Hanley Investment Group sums up the financial allure of this industry for investors, “There is no other operation on a 1-acre site that can do $1 million to $2.5 million in sales and pocket half of that.”

Arctos Sports Partners launched in April of 2020, and his since raised $3 billion dedicated to investments in the professional sports industry and sports franchise owners. Per an article in the Financial Times, Arctos is now the most prolific buyer of sports stakes around the world.

Through direct and indirect investments, it now owns stakes in 16 franchises including professional baseball’s Boston Red Sox, English football’s Liverpool FC, basketball’s Golden State Warriors, and the Kings.

As an example, the article cites Shaquille O’Neal’s immediate need to sell his minority interest in the Sacramento Kings. An endorsement deal with a sports betting company raised a red flag, and he was told that the NBA prohibits team owners from accepting gambling sponsorships.

That meant he would need to liquidate his minority interest in the Sacramento Kings. Instead of tapping his network of all-star friends to buy the stake, he struck a deal with Arctos Sports Partners, a relatively new private equity firm specialising in professional sports team investments.

Click on the link below for a fascinating article describing how the founders of Arctos uncovered this investing niche.