Private equity interest in the delivery of Botox injections, laser hair removal and specialized facials across the US is growing rapidly as the medspa industry matures and investors recognize those services have become habits for many consumers.
Most PE firms in the space are rolling up existing clinics under one management company, the classic buy-and-build strategy that PE firms use to create efficiencies of scale. Deals that provide capital to support roll-ups that are already in progress have been especially en vogue.
“The companies are getting to the size and scale where private equity can put in dollars and the check size be large enough to make sense,” said Sonya Brown, a general partner at Norwest Venture Partners. “But there’s always been the underlying growth, and that’s accelerated with things like Botox being more acceptable—and also more recurring.”
Owner-operators—often first-time entrepreneurs—have been opening up medspas independent of medical dermatology practices for about a decade, according to PitchBook’s Q2 2023 Healthcare Services Report. But until now, the nascent industry was too scattered to make sense for most middle-market firms, Brown said.
This year has seen the most growth deals in aesthetic dermatology to date, with at least eight announced in 2023, according to PitchBook data. While that deal count is still in the single digits, it’s a marked increase from 2020, when PE made only one growth equity investment in the space.
The building momentum is also in contrast to PE’s pullback from traditional healthcare services.
“Medspas is one of the only categories (in PE) that is up-and-to-the-right this year, and it fits very well as a category with the current deal environment,” said Rebecca Springer, lead healthcare analyst at PitchBook.
Morgan Stanley Private Equity is among the players betting on further growth in the industry.
Earlier this month, the firm anchored a continuation fund for Persistence Capital Partners’ Toronto-based platform MedSpa Partners, which has acquired and operates at least 40 medical aesthetics clinics in North America. The deal raised C$375 million (about $275 million) for the platform to make more acquisitions.
Norwest Venture Partners made a minority growth investment in a similar platform, Miami-based Aesthetic Partners, over the summer, the equity provider said Nov. 13. Founded in 2018, the company grew to comprise 20 practices in the US by acquiring businesses and opening new medspa locations.
While the medspa boom’s maturation has been somewhat recent, consumer demand and the recurring nature of the facilities’ treatments aren’t new, said Brown, who led Norwest’s investment in Aesthetic Partners.
But investors have become increasingly aware of the necessity for return trips for Botox and laser hair removal.
“Early on, with plastics, people thought, ‘Well, you know, people do that once,’” Brown said. “But the reality is: The plastic surgery-goer is a plastic surgery-goer. They normally do one thing, and that leads to another thing, and it leads to another thing. It’s the same thing with aesthetics.”
Investors in the space say they see room for growth in second-tier markets as well as typical cost efficiencies with the execution of a roll-up strategy.
“We wanted to be outside of major cities like New York and LA,” Brown said. “That’s where some of these trends started, so maybe those are more mature markets, whereas Aesthetic Partners is doing amazing in Columbus, Ohio.”
Featured image by Peter Dazeley/Getty Images
