Before Fazeela Abdul Rashid decided to invest in Aligned Modern Health, she took some blood tests.
“There’s no better way to perform diligence on a company than being a patient,” she said. Her firm, Arcventis Health Partners, was sizing up the Chicago functional-medicine practice this year. She booked an appointment, as did several close friends and relatives.
Arcventis closed its majority investment in Aligned Modern Health on Sept. 18, its first deal from its inaugural fund. The Chicago-based provider, which serves 90% of its patients through commercial insurance, is expanding into cash-pay services including hormone therapy and weight management.
That’s the side of healthcare PE money has headed toward.
The PE industry spent a decade rolling up dentists, eye doctors and addiction clinics, businesses that depend on reimbursement to pay the bills. Many of those deals have ended in lender takeovers and carveouts rather than exits.
“There has been a lot of distress and fragmentation,” said Jennifer Hutchens, a partner at Dechert who advises on healthcare restructurings.
In 2026, insured patients are paying more of the bill themselves. The average employer family plan now costs $28,303 a year, up 5% year-over-year, while workers’ share of that jumped 9% to $7,471, according to KFF’s annual employer survey released Oct. 22.
As a consequence, PE firms pivoted toward healthcare offerings such as Botox, weight-loss shots, hormones, peptides and concierge physicians, which are less reliant on reimbursement.
Jeremy Hirsch, head of franchise and multi-unit services at Houlihan Lokey, counts 15 to 25 medical-spa platforms at or on the way to $20 million of EBITDA.
“I think ‘27 and ‘28 are going to be some of the biggest years in the med-spa category,” he said.
At the same time, as alluring as it is to go directly to the customer, these investments still carry risks, some familiar, some completely new.
Not your grandpa’s DSO
For years, the playbook was straightforward: keep on rolling up and bolting on. But the pitch wore thin, as every medical specialty acquired its own dozen consolidators.
“Many of these roll-ups are just aggregating for the sake of aggregating rather than for the sake of providing incremental value to providers or patients,” said T.J. Carella, head of healthcare at Warburg Pincus. “Those businesses have found it very hard to find a home in a higher-interest-rate environment.”
“We can sell a bolt-on with a million dollars of EBITDA for an eight multiple,” said Tommy Newton, a principal at Xite, a Texas-based adviser that sells medical and dental practices. “When you have a [dental service organization] that has $20 million of EBITDA, they may only be a 10. There’s only two turns on that arbitrage—why would you do the deal?”
All the while, reimbursement couldn’t keep up.
“You just had this squeeze between reimbursement rates that only went up very gradually, and wage rates that, for a period of time, were going up pretty dramatically,” said Tom Flynn, managing partner at SV Health Investors.
Throw in sharply higher borrowing costs, and you have a backlog of businesses in the waiting line for an exit. A company with $100 million of EBITDA “might not be big enough to go public,” Flynn said, but is “becoming so big that it’s hard to effect another private-equity recap because the check size is so big.”
Some remain profitable and growing. Others might need a makeover. Partners Group-backed EyeCare Partners agreed to sell over 300 optometry offices in September, partly to pay down debt. Webster Equity Partners-backed BayMark Health Services, an addiction-treatment provider, completed a restructuring this month that passed the keys to lenders.
Interest from strategic buyers has cooled, too, and drug distributors are becoming a popular destination—such as Cencora, Cardinal Health and McKesson, Carella said.
Still, many roll-ups are “effectively zombie businesses at this point,” said Carella, describing some as “overleveraged, lacking the financial capacity to pursue acquisitions, and without a clear path to an exit.”
PE deals for physician-practice managers fell 36% in the second quarter from a year earlier and are on pace to drop 46% this year, according to PitchBook data.
Class of 2027
PE capital has moved instead toward what Josh Mastracci, a managing director at investment bank Cascadia Capital, describes as “lower-acuity, more mid-level-driven businesses with less regulatory exposure, including cash-pay models that can market directly to consumers.”
In concierge medicine, wellness and longevity care, PE wants more companies than there are to buy, he added.
Injectable treatments are recurring: three or four visits a year, and nobody files a claim. Clinics can also sell new services to existing customers, like laser treatments, weight management and hormone therapy.
Four or five years ago, “private equity was frantically looking for a [med-spa] platform, but finding one was elusive because much of the industry was mom and pop,” Hirsch said.
While some waited on the sidelines, “there was a whole other cohort that said, ‘You know what, I’m just going to build it myself,’” Hirsch said.
Those builders are approaching the final exam. $15 million to $20 million in EBITDA is the point, Hirsch said, where buyers really become interested.
Thurston Group is weighing a sale of Alpha Aesthetics Partners, a 37-location chain formed in 2023, that could launch as soon as 2027, PitchBook reported last week.
A high-quality platform can be underwritten at 14 to 15 times pro forma EBITDA, Hirsch said, “but all the characteristics need to be there.” These include growing same-store sales, growing patient count and average ticket size and providers who stay.
LaserAway, backed by Ares Management and Seidler Equity Partners, explored a sale earlier this year that could have valued the company at more than $2 billion, Reuters reported in June. The 219-clinic chain’s sale process is no longer active, PitchBook subsequently reported.
Costs to do business
Some PE firms might come to miss their insurance partners. Bringing patients in is real work when they can’t find you in their insurer’s provider directory.
“In a way, medical insurance is marketing,” Newton said. A practice on a plan gets that plan’s members. A cash clinic has to find its own, through advertising and word of mouth, “which are also very expensive.”
Cash-paying customers can leave at any time when the budget tightens. And, “there are limited barriers to entry,” Carella said. “I think you’re now seeing a lot of companies on the losing end of that oversupply.”
GVO Partners, which owned seven med spas in the Carolinas and Florida, filed for Chapter 11 in June. It was hoping to sell them, but five weeks later it was out of cash and in liquidation.
L Catterton-backed Ideal Image, a laser-hair-removal chain, closed its Tampa headquarters this year and cut 255 jobs while selling its clinics to multiple buyers in a distressed process advised by Houlihan Lokey.
Rolling up med spas “works, but it’s hard,” Hirsch said. Cultures clash, and “you never want to buy something where you have a provider that’s generating 50% of your revenue.” Nor can a premium-priced chain buy one “that’s selling Groupon discounts” and expect to keep those customers.
Everchanging regulation climate
Cash-in-hand clinics still face regulatory pushback. In March, the Food and Drug Administration sent warning letters to 30 telehealth companies over how they market compounded GLP-1s, and another 25 in June.
In 2024, demand for GLP-1 weight-loss drugs was soaring, and the supply of the most popular brands, Ozempic, Wegovy and Zepbound, was failing to keep up.
Med-spas—part medical clinic, part health and wellness facility—turned to cheaper compounded copies to meet the insatiable demand from customers willing to pay out of pocket.
In 2024, weight-loss drugs alone accounted for 90% of the revenue of some med-spas, observes Xite’s Newton.
The boom was short-lived. Novo Nordisk and Eli Lilly expanded production, leading the FDA to declare an end to the branded GLP-1 shortage in early 2025.
Months later, the exemption that allowed pharmacies to mass-produce cheaper copies of GLP-1s lapsed. Med-spa clinics’ drug costs jumped.
“The profit margins compressed immediately, overnight,” said Newton. “All of a sudden, private-equity-backed groups were not buying those practices any longer, because the risk was too great.”
“It’s like day to day, more than it’s even week to week or month to month, trying to keep up with the regulatory landscape,” Mastracci said. “And that’s just one product class.”
This is before we get to products such as peptides, chemical compounds that are in high demand among the rich and famous, but whose effects haven’t been thoroughly explored in clinical studies.
So buyers are increasingly spreading their bets across injectables, lasers, weight management and hormone therapy rather than focusing on one.
“The market is moving to whole-body wellness,” Hirsch said. “Aesthetics on the outside, wellness on the inside.”
The test is yet to come for many. Dental consolidation is 15 to 20 years old, Newton said. The med-spa version has been around for three or four, and these businesses will face the same exit test.
“They look great while they’re acquiring,” Newton said, “but actually growing the practices after they’ve acquired them is very difficult to do.”
“It’s easy to look really good at the beginning,” he said, “when you only have 20 practices.”
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