In recent years, the landscape of cosmetic and aesthetic healthcare has experienced a rapid growth rate and, as a result, the field of plastic surgery stands out as a beacon of opportunity for private equity investment.
Adoption and acceptance of the use of cosmetic procedures to enhance and improve physical appearance has accelerated significantly within the past five years. While some elements of cosmetic surgery have been in the purview of private equity for several years, namely liposuction focused platforms like SonoBello, there has been a significant uptick in the formation of new, aesthetics-focused, private equity platform investments in the past 24 months. Notable medspa players such as Advanced Medaesthetic Partners (Leon Capital Group), Alpha Aesthetics Partners (Thurston Group), and Princeton Medspa Partners (Princeton Equity Group) have been leaders in the medical aesthetics space, while Athenix (Latticework Capital), and Inspire Aesthetics (Hidden Harbor Capital Partners) have led the charge into the plastic surgery space, signaling a growing interest in plastic surgery focused groups. In the past 12 months alone, additional platforms including Ascend Plastic Surgery Partners (Sheridan Capital Partners), Olympus Cosmetic Group (VSS Capital Partners), and United Aesthetic Alliance (Varsity Healthcare Partners) have entered the fray, significantly bolstering the amount of dry powder ready to be deployed across the industry. Behind that, there are a number of additional private equity groups with investment theses in cosmetic services looking to create new platforms in the space.
Overall, there are three key trends that are serving as tailwinds for private equity’s continued interest in plastics surgery and aesthetic practices.
Plastic Surgery & Aesthetics Trends
Trend 1 – Increasing Demand
The demand for cosmetic procedures has surged globally, fueled by rising disposable incomes, changing beauty standards, reduction in overall stigma and broad acceptance of surgical intervention to improve appearance, and advancements in technology making procedures safer and more accessible. According to the American Society of Plastic Surgeons (ASPS), there were 1,255,228 cosmetic procedures performed in 2019 (pre-COVID) by ASPS member surgeons, 1,498,361 in 2022 (19% increase), and 1,575,244 in 2023, representing a steady and continued increase in recent years. (see the table below)
Source: 2023 Procedural Statistics Release, American Society of Plastic Surgeons
Trend 2 – Majority Cash Pay Services
The elective nature of plastic surgery and medical aesthetics means that apart from reconstructive services, the majority of services provided are not covered by insurance. This non-reliance on payors drastically simplifies the billing process and enables freedom of pricing, also simplifying the RCM function of the platform. The global medical aesthetics market was valued at approximately $13.3 billion in 2022 and is projected to reach $25.9 billion by 20281, with a compound annual growth rate (CAGR) of 11%. This growth trajectory is attributed to the growing acceptance of minimally invasive procedures, such as cash-pay injectable and laser treatments, which appeal to a broader demographic seeking lighter enhancements.
Trend 3 – Plastic Surgery Clinics Doubling Down on MedSpa Services
The integration of medical spas (medspa) into core plastic surgery groups represents a compelling opportunity for private equity investors to capitalize on the synergies between these complementary services.
Incorporating medspa services into plastic surgery practices enables providers to offer a comprehensive suite of aesthetic services under one roof. Patients can enjoy access to a full spectrum of treatments, ranging from surgical procedures such as facelifts and breast augmentations to non-invasive treatments such as laser therapy and injectables. By diversifying their service offerings, plastic surgery groups can attract a broader patient base and capture a larger share of the growing aesthetic market, capturing both upstream and downstream volumes.
Additionally, medspas contribute to revenue diversification and practice stability. While surgical procedures often constitute the primary source of revenue for plastic surgery practices, medspas offer recurring revenue streams through services like skincare treatments, spa therapies, and wellness programs. This revenue stability can help mitigate the seasonality and cyclical nature of surgical caseloads, providing a more predictable income stream for the practice. Many medspa treatments like Botox are quarterly episodes and practices can create patient stickiness with well-trained injectors and high-quality results.
Integrating medspa services into a plastic surgery practice can also enhance operational efficiency and cost-effectiveness by sharing administrative resources, infrastructure, and overhead expenses. By doing so, practices can optimize resource utilization and improve profitability. In addition, cross-referrals between Plastic Surgery and medspa services foster a collaborative care model, driving patient satisfaction and loyalty while maximizing revenue potential.
For private equity investors, the incorporation of medspa services into a core plastic surgery platform presents an attractive opportunity for organic, same-store growth. This integration not only enhances practice value and revenue potential but also helps diversify investment risk by tapping into multiple revenue streams and market segments. The scalability of the combined entity allows investors to capitalize on economies of scale and drive operational efficiencies across a larger footprint.
Plastic Surgery & Aesthetics Platforms
Why Now?
Currently, the plastic surgery landscape is in its nascence, favoring larger groups who can be leveraged as a regional anchor for platform development or smaller two to four doctor practices for tuck-in acquisitions within regions where the platform already has a presence. Sellers who transact within the next 12 months can expect to take advantage of an early mover advantage and high return potential on rollover equity.
As platforms mature, there is a noticeable shift towards national growth strategies within the industry. At that point, heightened national presence by all platforms increases competition across the broader market creating a very seller-friendly market.
The plastic surgery space shares many of the same attractive qualities as other specialties in the PPM (physician practice management) sector, including heavy fragmentation, with the majority of plastic surgery practices still independently owned. Private equity offers the opportunity to leverage scale to negotiate with vendors to minimize supplies and injectable costs, and the ability to introduce ancillary services through non-surgical services such as lasers, facials, and injectables such as botox and fillers. In plastic surgery, in particular, the heavy reliance on implants, injectables, and supplies presents the opportunity to benefit significantly from scale-related cost savings.
Early on, private equity interest in plastic surgery practices was low, driven by the market thesis that brands sat with the surgeon’s “name on the door”, which would pose barriers to the scalability of a national brand. However, this thesis has evolved following the success of “house of brands” MSO strategies in the eye care and dermatology spaces, where the local brand of each partner practice is kept locally, and MSO infrastructure is leveraged behind the scenes. In the case of smaller clinics with two to four plastic surgeons, a national name brand isn’t necessary to enhance success, and the MSO can bring more value from an operational and marketing perspective. Through the normalization of plastic surgery and medical aesthetics procedures, investors have begun to understand the recurring nature of cosmetic services. In other words, plastic surgery is not a “one and done” service as was previously believed. Patients who have undergone plastic surgery tend to continue to invest in further enhancements, whereas patients who just use Botox and fillers must continue to visit their aesthetics provider to maintain their effect. (On average, the effects of a Botox injection lasts 3-4 months, meaning patients must visit their aesthetics provider 3 to 4 times per year.)
As the demand for plastic surgery grows, and as medspa and ancillary services continue to expand, interest from private equity has never been greater, and practice owners are in the strongest position they’ve ever been in when exploring a practice sale. As owners start navigating the process, there are a few key considerations to keep top of mind.
Key Considerations For Practice Owners & Why an Advisor Is Important
When evaluating a potential partner, it is extremely important to find the right fit to ensure a strong go-forward partnership. PGP advises that four critical factors need to be considered when evaluating whether a partner is right for your practice
Maximize Economics and Achieve Most Favorable Deal Terms
Strike appropriate balance between total EBITDA credit vs the EBITDA multiple
Receiving credit for various tangible growth initiatives in the business (new locations, new providers, new service lines, etc.)
Achieve Clinical Autonomy
Ensure there is a strong level of go-forward governance control at the local level
The practice maintains directional control at the company, including work schedules, vacation days, work location, and retention of staff
Maintained control of provider recruitment and retention
Ensuring potential partners have the resources to execute against the strategy
Access to capital and economies of scale
Adequate level of administrative and operational resources provided (Accounting / Finance, IT, RCM, Marketing, HR & Recruiting, Business Development, Legal, etc.)
Track Record of Success
Partnering with experienced healthcare / PPM ‘Operating Partners’ with a history of adding significant value and operational guidance in the PPM space
Proven ability to align with young and newly recruited providers
Exceptional key performance metrics (recruitment, attrition, location growth, service line expansion)
While many independent groups may initially feel they can navigate a transaction without an advisor, those that have gone through the process with an experienced and reputable firm in their corner will be quick to highlight the significant value add from both economic, partnership and educational perspectives. Ensuring that each shareholder is prepared and fully understands the dynamics within a transaction is crucial for the future success of the business.
A seasoned healthcare transaction advisory team can ensure that the most attractive outcome is achieved. Through a formalized competitive marketing process, an advisor can ensure the practice maximizes their economics and transaction terms. A transaction process also allows the practice to interview multiple private equity partners and choose the group that presents the best ‘fit’.
Even if a group is approached by a buyer or has a buyer in mind, it is essential to run a process considering the practice has one opportunity to choose the right private equity partner, supplemented by the value a process drives regarding both deal terms and economics.
Creating Value after the Transaction
One of the biggest questions practice owners have is what happens after the transaction is consummated? In reality, if you are doing a transaction with a reputable private equity platform, physicians will largely continue to operate “business as usual”. The private equity partner will look to implement certain growth initiatives, but these initiatives will all be items that were discussed at great length in advance of consummating the transaction. On the clinical front, physicians will practice medicine the way they always have. Clinical autonomy is maintained, and an advisory firm like PGP negotiates this on the physician group’s behalf. As for infrastructure capabilities, groups that lack back-office sophistication will typically integrate into the “platform” practices EMR, Accounting and PM systems. Outside of day-to-day operations and clinical delivery, the most notable change is the holding of rollover equity in the new partnership by selling physicians. Due to the fact a substantial liquidity event is experienced, shareholders are required to utilize a percentage of their proceeds in the form of equity in the new enterprise. This is desired by the private equity firms as they want to maintain alignment with the physicians that they have invested in, creating a shared goal of a “second bite of the apple” when the platform ultimately experiences a subsequent sale 3–7 years down the road.
Private Equity Value Creation
Gaining Payer Leverage
Capturing In-House Ancillary Services
Centralizing Infrastructure and Operations
Resulting In
Sustaining Organic Growth
Conclusion
The consolidation within Plastic Surgery & Aesthetics continues to accelerate into the second half of 2024 and PGP expects the pace to continue into 2025. Whether a practice outwardly desires private equity partnership, questions the rationale and effectiveness of a PE partner, or downright disagrees with private equity, it is essential to get educated and ensure your practice is positioned for continued success in your market.
For those that choose to go down the path, it is imperative that culture and alignment, not simply economics, is the first goal. The role of an advisor like PGP can be the difference maker not only in knowing who can be trusted and who has a track record of success, but in ensuring an economic outcome that is satisfactory when transferring the ownership of your business.
If interested in pursuing a transaction, learning about private equity, the private equity strategy, transaction dynamics, or activity in your market, please utilize the information below to contact the PGP team and schedule a discussion.
1Medical Aesthetics Market Global Forecast To 2028 (January, 2023). MarketsAndMarkets.
