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  • Writer's pictureJustin Marti

Considerations for Medspa Practice Buyers

Updated: Nov 19, 2023

Buying an MSO, Medspa, or Medical Aesthetics Practice


Veterans of the medical aesthetics industry might tell you that the space has been consistently growing, evolving, and gaining momentum for decades. For the rest of the world, though, it seems like the medical aesthetics space has exploded in the last few years. And now, it’s growing at lightning speed, thanks to ample cash flow, patient demand, and a relatively unconsolidated market.


Medical aesthetics is a great place to invest, but for many investors, it’s also a relatively new frontier in healthcare. For potential medspa practice buyers and private equity groups, here are some considerations and trends to track in this rapidly evolving industry.


Trends in the Medical Aesthetics Market


We can summarize the momentum in the medspa market with a few key trends:


Rapid Growth


Both the industry as a whole and independent practices have experienced rapid growth, and are projected to grow even more rapidly over the next decade. From 2018 to 2022, practice sales grew across service lines and demographics. Fillers, injectables, surgical, and nonsurgical treatments gained momentum with Gen X, Millennials, and Gen Z. This includes both men and women–and in markets across the globe as aesthetic treatments receive more cultural acceptance across sectors.


Unconsolidated


Most medical spa practices are independently owned, leaving the market heavily fractured. As independent owners leverage opportunities to scale in this booming industry, it creates incredible opportunities for buyers to invest in single or multi-location MSOs with high margins.


Private Pay and Cash Flow


Unlike many healthcare industries, medical aesthetics doesn’t rely on insurance. Many treatments require some or all cash up front, which frees a practice from some of the inefficiencies of handling insurance or managing revenue cycles.


Technology


The medical aesthetics industry continues to recruit skilled physicians, PAs, NPs, and RNs to master new technologies. Where there may have once been a stigma around celebrities receiving “botched Botox,” the combination of improved technology and application of these treatments allows for more subtle transformations. As the industry offers more options that are less invasive (and with less downtime) for patients, it makes treatments even more attractive. What’s more, treatments like injectables, fillers, and lasers typically require ongoing follow-up, bringing patients back through the door again and again.


Understand Medspa Ownership

Navigating the Legalities of Medspa Ownership

One thing that makes medical aesthetics unique is the complexity of ownership, compliance, and regulation. We’ve written on this topic extensively, and encourage medspa buyers to be well-versed in the legalities of ownership. That’s why we wrote a free ebook on the topic. Download it here to learn about Medspa Ownership 101.



What to Know About Valuation for Medspas


Practice valuation is a subjective topic. As a buyer, you’ll determine whether you’re interested in a single-location medspa, a mid-sized MSO, or a large, developed MSO platform. Regardless, your diligence process will begin with annual revenue and Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). In the current market, a 10+ location MSO with a multi-million dollar EBITDA could receive an offer at nine to ten times the valuation.


Of course, there are many factors to consider in the valuation process, and what is essential to one buyer may be less critical to the purchasing decision of another. Factors to consider include:


  • Consistency of revenue and patient visits year over year

  • Service mix

  • Number of locations

  • Size of the physical space

  • Strength of operating systems


These elements all play a role in driving up the value of a practice, and thus, what you should be willing to pay for it.

Akin to an appraisal in a real estate deal, a practice valuation report should be able to provide “comps” of similar practices that have sold in your area. It’s imperative to assemble a team of advisors before shopping for a practice to ensure you are paying the right price for the target practice.


Potential for Growth


If you want to scale a medspa or MSO to new heights, you must consider if there is room to accommodate an increase in patient flow. Does the practice have room to add providers or services? How hard will it be to recruit additional providers and support staff? Retention must remain a top priority in medical aesthetics. If a practice has a star injector who has amassed their own patient list, it’s likely that their patients would follow them if they went elsewhere.


In medical aesthetics, the service mix is crucial to a practice’s growth potential. Does a practice rely heavily on injectables? Lasers? Is a plastic surgery practice leveraging medspa or non-surgical treatments as well? Buyers need to look closely at which services a practice offers most frequently to be able to project room for growth.

Additionally, you should take a close look at the operating systems that are in place. Does the owner have a well-oiled machine, complete with a robust operations manual where every employee can go to find training and get their questions answered? Or conversely, does the seller maintain all the processes and procedures in their head, and thus, people are lost without the owner on site to give direction? This is an often under-appreciated but critical element of any practice. The smoother the operation runs without immediate oversight, the better chance you have to scale quickly.

Are there legacy issues?


We advise clients to conduct a thorough lien and litigation search after signing a non-binding Letter of Intent (LOI). This search is conducted by a third-party and involves a deep dive into court records to identify if there are any past or pending legal matters of which a buyer should be concerned. Perhaps the practice owner is involved in a complicated malpractice suit. This may affect the practice's reputation, and thus, if a buyer should even pursue it.

The search also involves researching UCC filings, which show what liens exist on the business's assets. Perhaps the seller financed a piece of equipment but did not disclose that a loan exists. This would be a costly discovery for a buyer who may inadvertently inherit that debt. Even if the seller agrees to keep paying the debt after closing, a lien would still exist, meaning that the buyer may have an issue getting additional financing using the practice as collateral. The lien and litigation search will ensure that all liabilities are identified.

When representing a buyer, we present the lien and litigation search results to the seller, and much like a mortgage on a home, we require that the debt(s) be paid (and liens released) before closing on the practice. This ensures that a buyer gets the practice “free and clear” of encumbrances.


Medspa practice buyers can work with a legal team specializing in aesthetics


Marti Law Group is one of the few law firms specializing in buying and selling medical aesthetics practices. Not only do we understand the complexities of medspa law, we have first hand experience in both running a successful healthcare organization and navigating transactions. Reach out to learn more about buying a medspa with an experienced legal team.



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Disclaimer: This website is solely intended for the purpose of providing general information. This blog post is not a substitute for legal advice, thus no attorney-client relationship is created. An attorney-client relationship is only formed with Marti Law Group after you have signed an Engagement Letter. Nothing on this website constitutes legal advice. Every situation is different and fact-specific, and a proper legal analysis is necessary. The best way to get guidance on your specific legal issue is to contact a licensed attorney in your jurisdiction. To schedule a consultation with an attorney at Marti Law Group, please contact: info@martilawgroup.com or 860-552-7770

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