Private Equity Sees Potential in the Booming Medical Spa Industry

24 December 2023

Rising consumer demand and consolidation opportunities make the medical spa industry an attractive investment for private equity.

Private equity firms are increasingly turning their attention to the highly fragmented and services-oriented medical spa industry. With its robust growth, rising consumer demand, and potential for consolidation, this sector presents an exciting opportunity for investors. The convergence of consumer retail and healthcare services has fueled the expansion of medical spas, making it a lucrative market for private equity.

Increasing Consumer Demand for Medical Spa Services

The medical spa industry has experienced significant growth in recent years, with revenues increasing by approximately 10% annually since 2017. This growth is expected to continue, with the industry projected to reach a value of $23.42 billion by 2026. The rising demand for cosmetic procedures and treatments, coupled with a shortage of clinical professionals and medical spa services, has created a supply-demand imbalance. Consumers, including millennial men, are increasingly seeking out medical spa services, driven by the normalization of aesthetic procedures on social media platforms. The industry has also benefited from innovations in treatments, attracting a wide range of consumers. With the potential to reach a larger market share, the medical spa industry is poised for continued growth.

Fragmented Market with Opportunity for Consolidation

The medical spa industry is highly fragmented, with the majority of clinics being small, independent operators. Currently, only 8% of medical spas are part of a franchise, private equity, or national chain. This fragmentation presents an opportunity for consolidation, as scaled operators can benefit from operational efficiencies and better infrastructure. Private equity investors can provide the necessary capital to invest in marketing, technology, compliance, and training, enabling medical spas to expand their reach and standardize processes. Consolidation not only benefits the industry but also creates exciting opportunities for companies to partner with private equity investors and build scale platforms.

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A Durable Investment Opportunity for Private Equity

Despite being a consumer discretionary sector, medical spas have proven to be resilient across economic cycles. During the 2008 recession, the industry quickly rebounded, and a similar trend was observed following the COVID-induced shutdown. The “Zoom effect,” where individuals spending more time in virtual meetings became more conscious of their appearance, led to a surge in demand for aesthetic treatments. Furthermore, the out-of-pocket payment model for medical spa services reduces reimbursement and insurance coverage risks. The recurring nature of services and the ability to incorporate them into regular wellness routines make medical spas highly durable businesses. Private equity investors are drawn to the low-risk, high-reward potential of well-run medical spas.

Private Equity Interest Gaining Momentum

Private equity interest in the medical spa industry is gaining momentum, with approximately $3.1 billion invested in the past five years across 400 transactions. Recent mergers and acquisitions reflect this trend, with private equity firms acquiring medical spas and aesthetic clinic services providers. These investments provide independent medical spas with the financial strength and positioning needed to thrive in the competitive landscape. As the industry continues to grow and evolve, private equity interest and investment activity are expected to increase in the coming years.

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The medical spa industry’s robust growth, rising consumer demand, and consolidation opportunities have caught the attention of private equity investors. The convergence of consumer retail and healthcare services has created a highly fragmented market, offering an exciting investment opportunity. With its resilience, recurring revenue streams, and potential for scale, the medical spa industry is poised for continued growth. Private equity firms are increasingly recognizing the potential in this sector and are actively seeking investment opportunities to capitalize on the industry’s promising future.

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