Highly fragmented, services-oriented sectors have long been attractive for the private equity community, offering the opportunity to evolve mom-and-pop operators into larger-scale companies—seen recently in spaces ranging from funeral care to home building. Two prominent industry sectors experiencing this dynamic include consumer retail and healthcare services—and at the intersection of the two lies the medical spa industry.
The medical spa service industry has seen robust growth in recent years, increasing in revenue by roughly 10% a year since 2017 to reach $9.0 billion in 2022. We believe several underlying industry dynamics have fueled investor interest: rising consumer demand, sector resilience, and consolidation opportunities.
If consumer trends continue, the medical spa industry is expected to reach a value of $23.42 billion in 2026 (at a CAGR of 12.75%). We believe private equity is increasingly drawn to the recurring nature of services and product offerings, and the profitability and resilience of well-run medical spas due to their perceived low-risk, high-reward potential. In our view, the highly fragmented landscape, comprising small and medium-sized independent operators, presents an exciting investment opportunity for private equity.
Increasing Consumer Demand for Medical Spa Services
Changes in consumer attitudes have led to increased demand in cosmetic procedures and treatments that outweigh the current available supply of clinical professionals and medical spa services, with the majority of clinics reporting more interest and bookings than pre-pandemic, and longer wait times. The medical spa services industry is expected to achieve double-digit growth rates in the medium term, which we believe is due to favorable long-term tailwinds supporting growth.
Demand for medical spa services is high across the board. A recent Mindbody study found that demand for services and procedures is high for both men and women across multiple age ranges, highlighting an often-underrepresented demographic in this industry: millennial men. With significant buying power and an increased focus on health and wellness, the average man spends more in this category monthly than women ($1,800 compared to $1,044). Botox procedures for men have tripled between 2000 and 2020. With something for everyone, it is no surprise that we are seeing an increasing number of consumers interested in what the medical spa service industry has to offer.
Social media is driving awareness and normalizing aesthetic procedures, with coverage for the "fillers" tag increasing eightfold from 2010 to 2020. Among the Gen Z consumer, 44% say they learned about cosmetic procedures via social media. Certified dermatologists are vocal in the online conversation too, becoming a source of information for skincare health and product recommendations—Dr. Maneeb Shah, the TikTok "Derm Doctor," boasts 18MM followers who take his advice (and product recommendations) as loyally as one might do from their own doctor. As consumers take health matters into their own hands, with nearly 60% researching symptoms and treatments online before contacting a doctor, we believe the digital marketing potential for this industry is extensive.
Medical spas are proliferating to keep up with consumer demand. The respondent demographics of the latest American Society of Plastic Surgeons report prove an interesting snapshot of the current landscape—76% of respondents identified themselves as solo practitioners and only 2% identified as a multi-specialty group practice. As an increasing number of medical professionals enter the market to provide medical spa services in conjunction with existing offerings, such as dental surgeries, we expect an increase in multi-specialty group practices.
Innovation is driving demand across the board. New treatments like radiofrequency, body contouring and dermo-fillers increasingly used for chin and cheek enhancements, and biostimulators for buttock lift are some of the leading trends in the category unit. Medical spa service providers must keep up with this innovation, investing in the technology, and training medical professionals. In our view, the high-growth potential in this industry remains untapped—the pool of potential consumers in the US is nearly 80 million, defined as Americans aged 25-65 earning >$50,000. With the relatively low consumer penetration for procedures currently available, who knows which new treatment may attract the rest of the population?
Fragmented Market with Opportunity for Consolidation
There are approximately 2,900 clinics in North America, comprised primarily of smaller scale, independent medical spa operators: 81% of all medical spas are single-location practices, and only 8% are part of a franchise, private equity, or national chain. We believe that the medical spa industry will continue to consolidate, as scaled operators benefit from operational efficiencies, including:
A Durable Investment Opportunity for Private Equity
Despite the consumer discretionary aspects of these services, medical spas have a proven track record of resilience across economic cycles. Firstly, during the 2008 recession, the overall number of medical spa procedures only plateaued for a few short years, and robust growth had resumed by 2011. More recently, as the world reopened following the COVID-induced shutdown, there was a strong rebound in the industry by early 2021. This growth was driven in part by an unanticipated consequence of remote work: the "Zoom effect." As Americans spend an average of 8 hours a week in virtual meetings faced with their on-screen appearance, there was a surge in demand for aesthetic treatments: a study of remote workers in early 2021 found that 40.6% of participants who had not previously undergone facial cosmetic treatments were now planning to, thanks to the Zoom effect highlighting appearance concerns.
Additionally, consumers of medical spa services typically pay for the products and services out of pocket, meaning revenue would not be subject to reimbursement risk or insurance payor coverage risk, which is attractive from a risk mitigation perspective.
Medical spa services such as injections and skin rejuvenation services are typically not a one-time customer purchase—patients can incorporate the services into their regular wellness routine and seek out follow-up treatments. Additionally, medical spas can utilize multiple product lines to increase and diversify revenue streams, aiming to reduce risk and stay ahead of the competition. Many medical spas are becoming more efficient by developing vertical integrations of service expansions. We believe these factors are showing spas within the medical services industry to be compelling and highly durable businesses for private equity investors.
Private Equity Interest Gaining Momentum
Approximately $3.1 billion in private equity capital has been invested across 400 medical spa and aesthetic clinic transactions over the past five years. Recent M&A transactions in this space and reflecting this trend include:
June 2023: SkinSpirit, a KKR portfolio company, acquired Contempo Aesthetics, a California-based medical spa.
April 2023: The Thurston Group, a Chicago-based private equity firm, acquired The Esthetics Center, a California-based medical spa and cosmetic surgery services provider.
February 2023: MedSpa Partners’, a portfolio company of Persistence Capital Partners, acquired Advanced Skin & Body Solutions, a Washington-based medical spa services provider.
June 2022: Sono Bello, or Body Contour Centers, a leading multi-unit private plastic surgery practice, acquires Body Sculpt International, the nation’s third-largest provider of body contouring surgery.
February 2022: Hidden Harbor Capital Partners acquired Inspire Aesthetics and Garramone Plastic Surgery, two plastic surgery and aesthetic medicine centers in Florida.
Investment in medical spas may be just beginning to gain momentum for private equity, but it could serve as an advantageous pathway to growth and sustainability, especially for independent medical spas seeking to bolster their financial strength and optimally position themselves in today’s ever-changing landscape. We believe the many attributes of the medical spa industry will drive continued private equity interest and investment activity in 2023 and beyond.
