The MedSpa industry is evolving, attracting private equity interest due to its strong fee-for-service model. Bill Walker, CEO of Aesthetic Brokers, joined Cameron to discuss private equity’s role in the space.
Why MedSpas Attract Private Equity
Private equity sees value in MedSpas’ predictable revenue. As Walker states, “It took roughly 20 years plus of pioneering efforts of the forefathers and foremothers of the aesthetic space to build a reputable, credible industry that provides an incredible service to their patients.” Now worth $18 billion, the sector is gaining attention.
The cash-pay model is another draw. Walker notes, “It’s incredibly attractive from a fee-for-service perspective… incredibly powerful.” Additionally, as Cameron explains, strong client loyalty ensures demand: “Most of the women out there, once they’ve had the drip, they will find a way to continue to get the drip because they’re that loyal.”
Growth and Investment Strategies
A key mistake owners make is underinvesting in marketing as they scale. Cameron states, “I think a lot of times, we expect to spend the same and get a bigger outcome.” Walker advises scaling marketing spending with growth: “You should probably be spending, you know, let’s call it eight to ten thousand, as you continue to grow.”
Rather than hiring an internal team, Walker recommends leveraging external agencies: “It gets costly to bring in an internal marketing team… if you partner with an outside agency, that is their bread and butter day in and day out, they’re going to be in tune with the latest trends.”
Private Equity’s Investment Models
Private equity offers different exit strategies. For those ready to retire, Walker suggests an all-cash deal: “You may be at the point where you’re like, I want to retire. I like my spouse. My significant other is ready to retire. We want to do a one-year handoff.”
Selling a portion can be an option for owners wanting to grow their business further. Cameron explains, “The other play is you sell a little portion. So you get a first bite, and then roll your equity right into the group of other practices.” Walker elaborates, “You can end your career with multiple liquidity events where you’re seeing realized cash returns on cash multiples.”
Succession Planning is Key
Many owners neglect long-term planning. Walker stresses, “You must be conscious and mindful of it and make it a priority for yourself.” He warns against waiting too long: “If you’re not going to narrate the script, I guarantee the person wanting to buy your practice eventually will narrate it for you.”
Maximizing Business Value
Walker highlights three essential financial metrics:
- Know Your Numbers: “If you can’t tell me what you did last month… you gotta know your numbers.”
- Monitor Cost of Goods: “If you can’t tell me what your cost of goods is
- know your cost.”
- Invest in Marketing Wisely: “You need to put metrics behind it and understand, what am I investing in?”
Working with an expert broker can significantly impact negotiations. Walker states, “You are never going to negotiate for yourself better than having that third-party expert come in and help you through the negotiation process.”
Takeaway
The MedSpa industry is ripe for investment. Owners looking to scale or sell should plan strategically. Walker advises, “It’s valuable to have somebody sit down and talk through with you and say, ‘We have five offers on the table right now. This is what this offer means.'” With proper guidance, MedSpa owners can navigate private equity successfully.
Listen to the full episode on Spotify: Aesthetics Appeal
