Recent MedSpa Conference Perspectives and Takeaways

As part of Houlihan Lokey’s ongoing coverage efforts, the firm generally attends industry conferences as thought leaders in its respective categories in order to ensure we are providing the most relevant insights and advice in the market to both existing and prospective clients. This year, we spent time at the Octane OC Aesthetics conference in Newport Beach, California, and American Med Spa Association conference in Las Vegas, Nevada, the largest medical spa conference in the U.S. Attendance at both events was record breaking as expected, in line with the growth and excitement happening in the medspa category. Both events were filled with attendees from the entire ecosystem of the aesthetics industry—from medspa owners, injectors,?equipment and technology vendors, to plastic surgeons and business executives—and, of course, more private equity attendance than ever in the history of both events. The conferences allowed us to distill a great wealth of information from panels with KOLs, one-on-one conversations with sponsors/owners, and deep dives into the most pressing topics and trends happening in the industry today. Post conference, we like to share our insights with our audience, and the below will be the first in a series of industry coverage efforts on the medspa category by the authors.

How has the medspa category fared over the past six to nine months, and what is the outlook for owners and operators given the rumblings regarding a recession?

Volumes have not abated, and nearly every medspa we spoke with sees daily rising volumes. While there may be some softness that exists in pockets (patient return frequency, spend per visit), most providers are booked out from weeks to months in advance with strong backlogs, and the outlook is truly fantastic. While more nascent at the time, the overall industry was only down ~3.9% during the last recession, with the number of procedures actually increasing ~6% between 2008 and 2009. Today’s industry 15 years later contains an entirely different set of dynamics, volume, and demand drivers. The industry was focused on the rejuvenation of the older adult, whereas today the industry is shifting toward “prejuvenation,” with the fastest-growing cohort of consumers aged between 20 and 40 years old. Males are also getting into the game as the stigma associated with getting procedures is reduced and more accepted by society. Capturing the male demographic with the right messaging represents one of the biggest opportunities in the market today. Overall, we feel it is important to take a longer-term outlook on the category vs. a 12–15 month perspective. The COVID-19 recovery of the industry was a lot faster than medical dermatology, supported by a different (younger) patient demographic and the Zoom effect as consumers became increasingly aware of their daily appearance on camera. Long-term TAM of ~$50 billion in a highly resilient sector with very recurring subscription-like revenue will support investment long-term.

What about the conferences did you not expect and that surprised you the most?

How established the category is despite its growth. This is also a very established category for the manufacturer channel. According to many of the folks we spoke with, 60%–70% of the manufacturer distribution is the medspa segment. It is a critically important segment for product distribution—seemingly more important than physician offices, medical dermatology offices, etc. It is especially important for the manufacturers given that this is where much of the growth is coming from in the industry. Also, it appears most plastic surgeons do not like performing medspa procedures. They would rather do higher-ticket surgery, and if they do injections, they tend to charge a significant premium to what an injector would charge (it has to be worth their time). Similarly, many dermatologists are reluctant to do Botox or filler and would rather perform more traditional dermatological work. Regardless, many patients still have a preference toward physicians, so perhaps having cosmetic surgery and medspa over the long term could be a winning combination. Finally, what surprised us is that we are not sure the category knows itself. A lot of operators believe they are healthcare companies. Some call patients customers, and some call them consumers. We believe that when you put needles in someone’s face and you are regulated by healthcare agencies that you are clearly a healthcare business, but in this case with a strong consumer wraparound and cash pay business model.

What consumer trends were most top of mind at the event?

Patients are educated. They desire access to information about their skin before seeing a provider and undergoing a treatment plan. The provider has heavy influence and can drive product choice through education and evidence. Most patients desire moderate to significant change, which means they want value. They want consultations for what they are paying for beyond the injection itself. Only 5%–6% of those who want an aesthetic treatment have actually tried or gotten one (according to Allergan). The average age of aesthetic patients is also dropping, with the 30–40 range as the No. 1 demographic.

Male aesthetics represent one of the largest opportunities in the category, but males must be marketed to in very specific manners and are generally more focused on non-invasive offerings. When it comes to memberships, 81% of Millennials say membership programs increase their spend and loyalty with that business. Membership/ loyalty??programs can help with patient?retention, increase referrals and per patient?spend, and increase monthly recurring revenue/ annual recurring revenue.

The emergence of companies like Facetune, which allows consumers to edit and retouch their selfies, is proliferating amongst the consumer base. The next big thing on the horizon is skin laxity and non-invasive treatments below the neck. We see jawline treatments starting to take off, whether it’s fat-melting treatments like Kybella or radiofrequency/energy-based devices to improve the neck line or ultrasound treatments like Ultherapy to treat skin laxity.

What opportunities do you see for strategic and financial investors in the category?

We see tremendous opportunities with decades of white space and consolidation. There are very few scaled players that exist today in a market where the unit economics are best-in-class vs. comparable multi-unit categories. We also see other opportunities to play these trends in other pockets of the sector (specialty distribution, specialty EMR, staffing, digital marketing, fintech, medtech, etc.). The industry is growing 10%–15% organically depending on what you read.

We also see a real opportunity, given the industry’s growth, to establish a gold standard training, certification, and staffing organization. Growth is likely to outpace the supply of providers, on the other hand, it is a more desirable role for nurses as compared to a hospital position. Attractive margins allow for these models to exist, and providers can benefit from sales and training at the same time. People often forget that this is a healthcare business first and foremost, but with a consumer-facing approach. You need high-quality, trained, and qualified providers treating patients.

What key themes emerged from the private equity universe of investors looking to put capital into the category?

The number of private equity firms with a thesis and investment committee approval to find something in the category is meaningful and increasing by the month. Investors generally prefer built-out management teams, a clearly defined market strategy, and recurring revenue (mostly injectables) as the focal point. While there are some investors who recognize the value of getting into the category early and are willing to invest the time to build a platform from scratch, many are looking for a more scaled operation with the building blocks already in place. The assets that will be coming out in the next 6–24 months will look very different than the inventory out today as we move out of the first and second innings.

This article is co-authored by Jeremy Hirsch .

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Octane OC American Med Spa Association