Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Medical Spa Chains
Transcript
- Lucas: There's a scene in the movie 'The Big Short' where one character explains that the only thing worse than losing money is making money the wrong way. I think about that line every time I look at a sector where private equity is moving fast. And right now, one of the fastest is medical spas. Luna: Medical spas. So we're talking about Botox, fillers, laser hair removal — the aesthetic medicine space. I feel like I see a new one opening in my neighbourhood every month. Lucas: Exactly. And the data backs that up. According to the American Med Spa Association, the number of medical spa locations in the U.S. has grown from about 2,500 in 2014 to over 9,000 today. That's a compound annual growth rate of roughly 14 percent. And private equity has been a huge accelerant. Luna: What's the thesis? Why is PE so interested in giving people Botox? Lucas: The thesis is actually pretty classic. You have a fragmented market — mostly single-location, doctor-owned practices — with strong recurring revenue, high margins, and an aging, affluent demographic that wants to look younger. It's the same playbook they used on dental practices and veterinary clinics. But medical spas have an extra layer: the 'retail' component. Luna: How do you mean, retail? Lucas: Unlike a primary care visit, where a patient shows up maybe once a year for a check-up, a med spa patient comes in every three to six months for a treatment. And they often buy packages — six sessions of laser hair removal for $1,500 upfront. That creates a float of deferred revenue and high retention rates. It's almost like a subscription model for vanity. Luna: Alright, so give me a concrete example. Which deal should I know about? Lucas: Let's look at Milan Laser Hair Removal. They started in Omaha, Nebraska in 2012 with one location. By 2019 they had about 10. Then TSG Consumer Partners — a private equity firm that focuses on consumer brands — took a majority stake in 2020. Today, Milan has over 200 locations across 30-odd states. They're the largest laser hair removal chain in the country. Luna: 200 locations in five years. That is not organic growth — that's a roll-up. Lucas: Correct. They've been buying smaller laser clinics and also opening new 'greenfield' locations. And the unit economics are genuinely attractive. A single laser machine costs roughly $100,000 to purchase. A single session of full-leg laser hair removal can retail for $300 to $500. A patient typically needs six to eight sessions. So one machine, fully booked, can generate maybe $200,000 to $300,000 in annual revenue per treatment room. The gross margins are north of 70 percent once the machine is paid off. Luna: What about the clinical side? This is still a medical procedure — even if it's cosmetic. Are they using actual doctors, or are they cutting corners? Lucas: That's the tension at the heart of this whole sector. In most states, laser hair removal can be performed by a registered nurse or a licensed aesthetician under a doctor's supervision. The doctor doesn't have to be on-site. So many pe backed chains use a 'medical director' model — one physician who oversees multiple locations. The actual treatments are done by mid-level providers. Luna: And that's where the risk lives. If the quality dips, or if there's a bad outcome, it can torch the brand. But from a margin perspective, it's brilliant — you don't need a $400,000-a-year dermatologist doing every zap. Lucas: Right. And the PE firms know that consumer trust is fragile. So they invest heavily in training protocols, standardised equipment, and consistent pricing. Milan, for example, markets itself as 'doctor-owned and operated' even though the actual providers are mostly nurses. It's technically true, but it's a stretch. Luna: Let me play devil's advocate. Why shouldn't a dermatologist sell their practice to one of these chains? They get a big cheque, they stay on as medical director, and they don't have to worry about billing, marketing, or HR. Isn't that a good deal for them? Lucas: It can be. The typical deal structure works like this: a PE firm buys a majority stake in a multi-location group, the founding doctors roll over some equity — say 20 percent — and get a cash payout for the rest. They also sign an employment agreement to stay for three to five years. The PE firm then uses that platform to acquire more practices. So the doctors get liquidity and a second bite at the apple if the platform gets sold to a larger firm or goes public. Luna: I want to come back to the consumer angle for a second. When PE takes over, do prices go up? Lucas: The evidence is mixed. Med spas have become more accessible in terms of number of locations, but prices haven't come down. If anything, the big chains are better at upselling — they'll sell you a package, then a maintenance plan, then a skincare product line. The average revenue per patient goes up over time. But your first session of Botox is probably about the same price as it was at a standalone clinic. Luna: So it's not cheaper, it's just more available. And more aggressively marketed. Lucas: Exactly. And the marketing spend is another reason PE likes this space. A single-location practice might spend $20,000 a month on Google Ads. A chain with 200 locations can spread that cost across all of them and negotiate better rates. They also have the data to retarget you after you've visited once. Luna: Alright, give me the bigger picture. How big is this market, and who are the major players besides Milan? Lucas: The global medical aesthetics market is roughly $20 billion and growing at 10 to 12 percent per year. The big pe backed chains include Milan Laser, Ideal Image, and Advanced MedAesthetics. There's also consolidation happening upstream — private equity firms are buying the distributors of Botox and fillers. Earlier this year, a PE firm bought a major stake in a company that supplies neurotoxins to med spas. Luna: And then there's the new frontier: GLP-1 drugs. Ozempic, Wegovy — they cause rapid weight loss, which leaves people with sagging skin. And what do you do with sagging skin? You go to a med spa for skin tightening treatments. So PE is betting on that synergies too. Lucas: That's a great point. Some of the larger chains are already adding body contouring and skin tightening services specifically targeting the GLP-1 demographic. It's a classic adjacency play. Luna: I want to ask about the regulatory risk. The FDA has been tightening oversight of medical spas, especially after some high-profile incidents — infections, burns, unlicensed practitioners. Could that blow up the PE thesis? Lucas: It's a real risk. In 2023, the FDA issued warning letters to several med spas for selling unapproved products. And some states are moving to require that a physician be physically present for certain procedures. That would completely change the economics — you'd need a doctor per location, which kills the leverage. But most PE firms are betting that the regulatory pendulum won't swing that far because of lobbying by the industry. Luna: Interesting. So the play relies, in part, on the regulatory environment staying favorable. Lucas: It does. And that's always a risk. But for now, the train is moving fast. There are something like 9,000 med spas in the U.S. — and probably half of them are still independently owned. So there's a lot of runway for consolidation. Luna: Before we go further — and I mean this genuinely — if today's episode moved your thinking about your own industry, or made you reconsider a business decision, I want to point something out. We keep this show ad-free and independent because of listeners who chip in a small amount. And it really adds up. Lucas: Yeah, we don't have a big media company behind us. We have you. So if you found some value here, the simplest thing is a coffee — buy me a coffee dot com slash fexingo. That's it. No tiers, no rewards, just knowing the show stays independent. Luna: And we mean that — a coffee's worth, if it was worth it to you. Alright, back to the med spa gold rush. Lucas, you were saying the consolidation is still early? Lucas: Right. The top five chains probably control less than 10 percent of the market. Compare that to, say, veterinary clinics, where the top consolidators have about 20 percent. So there is still enormous fragmentation. And private equity has a lot of dry powder — unspent capital — that needs to be deployed. Med spas are a natural target. Luna: What about the technology piece? Are these companies investing in AI or new devices to stay ahead? Lucas: Some are. There's a growing use of AI for treatment planning — for example, an AI system that analyzes your skin and recommends a customized laser setting. That reduces the need for a highly trained clinician and standardizes outcomes. Milan, for instance, has its own proprietary treatment protocol that they claim is more effective. But it's also a moat — if every clinic in the chain uses the same protocol, patients get a consistent experience, and it's harder for a competitor to replicate. Luna: Let's talk about the exit. If you're a PE firm that bought a med spa chain, how do you get your money out? Lucas: There are a few paths. One is a sale to a larger PE firm — a 'secondary buyout.' Another is a sale to a strategic buyer, like a large healthcare system that wants to expand into wellness. The most ambitious path would be an IPO, but that's unlikely in the current environment because public markets are skeptical of companies that rely heavily on elective procedures. A recession would hit them hard. Luna: Do you think these businesses are recession-resistant? People might cut back on Botox if times get tight. Lucas: History suggests it's mixed. During the 2008 recession, cosmetic procedures did dip, but they recovered quickly. And there's a well-known phenomenon called the 'lipstick effect' — small indulgences that make people feel better during hard times. A $400 laser session is not a trivial purchase, but it's cheaper than a vacation or a new car. So the data shows that med spas held up reasonably well. Luna: One more thing — I've seen some criticism that pe backed med spas push treatments on patients who don't need them. The classic upselling problem. Is that a fair critique? Lucas: I think it's fair to say that the incentives are aligned to maximize revenue per patient. When a nurse is evaluated on how many packages they sell, that can create pressure. Some chains have commission structures based on sales targets. That's a red flag if you care about patient welfare. But it's also not unique to PE — solo practitioners can be just as aggressive. The difference is scale: a chain can train hundreds of providers to upsell the same way. Luna: So the bottom line: private equity sees medical spas as a perfect machine — recurring revenue, high margins, fragmented supply, and a booming demographic trend. But the risks are real: regulatory backlash, clinical quality slippage, and recession vulnerability. Lucas: That's exactly right. And as with most roll-ups, the real test will come in the next downturn. If the chains hold together, you'll see even more money pour in. If they start to crack — if patients get hurt or loyalty breaks — the whole thesis could unravel. Luna: I'm going to be watching Milan Laser and Ideal Image closely. And maybe booking a consultation — for research, obviously. Lucas: Of course. Pure journalistic curiosity. I'll come with you — to observe the unit economics firsthand.