By Michael Meyer

It’s no secret that medical aesthetics have been tremendously successful in recent years. According to AmSpa’s 2022 Medical Spa State of the Industry Report, medical aesthetics practices will bring in an estimated $1.8 to 2.1 billion in 2023. And while the industry’s rate of growth seems to be slowing a bit due to larger economic forces, it has shown itself to be extremely resilient. Demand for aesthetic services still outpaces medical spas’ ability to provide them in many markets, and it’s unlikely that will change anytime soon.

In recent years, the medical aesthetics industry’s success and growth potential has begun to attract the interest of private equity investors. Generally speaking, private equity firms invest in or purchase businesses in order to share in the profits the businesses earn. Of course, this means that they have determined that the businesses are making enough money to make them worth investing in, so private equity interest is generally a good sign that people who are in charge of enormous amounts of capital believe an industry is poised for long-term success.

Several private equity firms are making major investments in the medical aesthetics industry; among the most active are Advanced MedAesthetic Partners (AMP), MedSpa Partners (MSP), Shore Capital Partners, Thurston Group, Birch Medical Spas and Viper Equity Partners. But these firms aren’t looking for just any medical spa to throw money at—medical spas need to work hard to make themselves attractive to potential investors. Here is a look at why private equity firms are so interested in medical aesthetics, and how medical spas interested in partnering with these firms can spark interest in their practices.

Setting the scene

It should come as no surprise that private equity is so interested in investing in medical aesthetics. In addition to the financial success it has produced, medical aesthetics represents an almost completely unique type of business that provides services that can’t be found anywhere else.

“The medical aesthetics industry is a unicorn to private equity,” says Nicole Chiaramonte, a longtime medical spa owner and founder of AMP, a new investment platform that has partnered with 14 medical spas thus far. “They think of it as retail medicine—scalable, multi-site health care with a highly desired cash pay model. The industry is growing, has shown itself to be recession-resistant and is highly scalable, if one knows what they are doing. But the thing is, aesthetics is not just a unicorn because of its cash-pay medicine model. The people, cultures and motivations at the practice level are just as unique; private equity groups who have found their way into this arena are discovering that quickly. One can’t run a medical spa the same way they run an urgent care practice.”

Perhaps because of these idiosyncrasies, private equity firms have not been as quick to jump on medical aesthetics practices as they would have been to invest in more traditional businesses. After all, according to AmSpa’s 2022 Medical Spa State of the Industry Report, the medical aesthetics industry has posted growth of greater than 20% each year since 2015 (except 2020, due to the pandemic-related shutdowns), so a lack of familiarity may have caused investor skittishness.

“I think the investment community in general has been a little bit sleepy when it comes to medical aesthetics,” says Dominic Mazzone, CEO of MSP, a private equity firm that owns 11 high-profile practices in the U.S. and another 21 in Canada. “Like, in the U.S., there have been more medical dermatology consolidations, and those consolidations have been going on for quite some time. But medical aesthetics was just kind of left alone. But when you think about medical aesthetics, it really holds an interesting niche in the retail health care space. It’s got an attractive growth rate. All the trends are going the right way. It’s private pay, primarily, without insurance reimbursement, which is very attractive, and it is pretty recession-resilient, so it really is a great space for investment, and I think everybody is now woken up to it.”

And because they understand the unique nuances of medical aesthetics, as opposed to the traditional health care practices or retail businesses that medical spas are often grouped with, platforms dedicated specifically to medical aesthetics, such as AMP and MSP, can help in ways that other firms cannot.

“Private equity deals can be wonderful for people looking to expand and ‘take some chips off the table’ by selling interest in the company and putting money in the bank, and private equity can invest heavily in infrastructure, marketing and professionalizing what are historically small businesses—’mom and pop’ practices,” says Chiaramonte. “But it can also be devastating if they partner with a group that runs their locations the same way they run their traditional health care or car-wash platforms. I receive emails weekly about people who chose the wrong capital partner.”

Two ways to succeed

But while attracting private equity interest may be easier now than it has been in the past, it’s important to understand that there are different types of deals being made in this space. Some firms are looking to strategically invest in medical spas with growth capital, while others are looking to acquire them.

Chiaramonte’s firm, AMP, is primarily interested in strategic investments. This offers medical spa owners a chance to expand their practices more quickly than they otherwise would be able to while retaining ownership of their company.

“We are partnering with owners who want to grow their existing practice or add new practices, but don’t want to do it alone or bear the cost and additional risk,” says Chiaramonte. “We are not looking for people to ‘tap out’ and leave the practice. We want a partner we can support and help grow their teams, practices and brands. AMP was founded by someone who has owned and run practices; it is employee- and partner-owned and created with the purpose to help our partners, teams and locations become world-class practices, focusing on training and education, and exceptional patient experience.”

Meanwhile, MSP typically acquires medical aesthetics practices, but it does so with an eye toward maintaining each medical spa’s brand identity and empowering the practice’s key people while assisting them with the day-to-day practice management tasks that would otherwise consume their time and offering other benefits.

“A true platform like ours takes away all the burden of everyday stuff—bookkeeping, HR, IT, legal, all those kinds of things, and that is really important,” Mazzone says. “Those are things that a clinic owner no longer has to worry about, because you have a big solid partner in place. The ones that are doing it really well also have a tremendous amount of data. And this is where we really start providing value to clinics and where we really benefit them. A company like ours has tons of resources to help take the data and put it in a kind of actionable strategies to make a difference in the clinic. We have resources that are out there recruiting and marketing for you. We are out there trying to make the clinic’s day-to-day administrative life easier, and that will give them time to really focus on the patient experience. In short, we’re the giant helping hand that handles so many things that clinic owners don’t want to deal with, do it in a way that’s eloquent and balanced, and, at the same time, make sure that that is not heavy-handed.”

An ideal partnership

As you can imagine, firms that are making substantial investments into medical aesthetics practices must be strategic about which medical spas they choose to partner with. Not every medical spa has the qualities private equity firms are looking for, and those that do may not seem to need the help, on the surface. However, private equity firms not only provide money, but also create opportunities for practice owners to pursue areas of the business they might not otherwise have time to engage with.

“We focus on healthy, well-run practices,” says Chiaramonte. “The goal is to let them keep doing what they do well and help fine-tune in areas where they want assistance. There are certain functions around HR, software, reporting and banking that need to be streamlined across the AMP platform, but we work with owners to find out what their goals are and help them get there. Some owners want to go back to working as a full-time provider and no longer want to manage the business, while others want to stop practicing and just manage or train. We are able to create plans to help them achieve their goals.”

It is also important for the established owners of the medical spa to be devoted to its ongoing success, not only when they begin the partnership, but also for many years in the future.

“If someone is looking to walk out the door the day after closing, then that’s not a partner for us,” says Mazzone. “I always say this to folks who we engage with and talk to about acquiring their clinic—we’re willing to give you lots of money because we’re trying to buy a steady stream of cash flow. A sure way to screw that up is if the person who cared enough to make the clinic a success walks out the door the next day. We want someone who actually wants to partner.”

Once this baseline of trust is established, the medical spa owner and the private equity investor can begin to build a mutually beneficial relationship.

“We look for a really good fit,” Mazzone says. “Can we agree on the vision? If so, we’re going to be able to work in a cooperative way to try to achieve that vision. Everyone in the partnership treats each other like a respected partner, no matter where their positioning is in that partnership. When we acquire clinics, people roll equity, they become shareholders and it’s all there. But even though you’re a majority shareholder, we don’t come in heavy-handed. We don’t come in and say, ‘We own this stuff, so that’s how it’s going to be.’ We work in a cooperative way. When everyone’s happy in this situation, it works. We turn down a lot of folks if we feel like it’s not going to work and it’s not going to be a good fit.”

But it is important for medical spa owners looking to partner with a private equity firm that the formula for their success changes when outside money is introduced into the equation. “I believe the entrance of private equity into our world will change the rules and make it difficult for independent practices to operate as we have in the past,” Chiaramonte says. “The change can be good in certain areas, but, depending upon the group, it can be all about the numbers and profit, which is the mandate of private equity firms—to create profit at all costs. We will see some great operators and some bad actors. Owners considering selling to private equity or partnering with a platform like AMP need to do their homework, be very clear about outcomes, and get everything they want in writing.”

Interesting times

For these reasons, the incursion of private equity into medical aesthetics might seem like a scary development. As investors become acquainted with the industry, they are becoming more and more smitten with it.

“I love that there are constantly new things happening in medical aesthetics,” says Mazzone. “There are breakthroughs all the time. When you look at things like the promise of exosomes and those types of things that are coming down the line, it’s amazing. We’re getting to a point where we’re actually able to de-age people, and I love that I can see medical aesthetics evolving to go beyond just the visual. I also love the people. How many other industries do you see where people are, for the most part, really happy—not just the patients, but also the staff? It’s just cool. It’s a cool market.”

Meanwhile, investors who have been around medical aesthetics for years remain dedicated to preserving its unique essence.

“My favorite parts of medical aesthetics are always the people,” says Chiaramonte. “I identify with and deeply respect the entrepreneurial owners, knowing the sacrifices they made that their teams will never know about, the providers whose passion for their profession and patients is inspiring, and the administrative staff who make everything work and patients feel seen and heard even before they sit in a treatment chair. This is a special industry, with exceptional people. When you have that special mix, and prioritize taking care of those people, the profits come.”

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