Why the Medical Aesthetics Industry Is Ripe For Consolidation

Medical Spa Merger and Acquisition

The Medical Aesthetics Industry is without question a very attractive industry for investors. The industry has matured to a point where consolidation makes sense. The industry has proven that it has staying power and appears to have the strength to expand exponentially over the next 5 – 10 years. Driving forces behind the industry’s growth appear to be led by increasing demand for services, ever improving treatment outcomes, expanding service offerings, and technological advancements that are addressing customer needs and wants.

Consolidation, which is for the most part the process of acquiring and merging multiple businesses, starts to make sense when an industry has reached a point of maturity that economies of scale through expanded operational and back-office support can take a business to the next level. This is typically beyond the point that a single unit practice owner can typically manage. Economies of scale are best described as having multiple businesses take advantage of the same support team, buying power, operational expertise, training, etc.

Companies that can leverage economies of scale have an advantage over single or limited multi-unit owners because they can typically operate more efficiently and effectively. Done right, this can lead to better operational effectiveness, improved training, expanded service offerings, lower costs, more consistent patient experience, and better patient outcomes among other things.

In a seven-state analysis that took into consideration a sampling group that can be representative of the entire country, which included states from the Northwest, Southwest, Mountain Region, Midwest, South, and Northeast United States, fragmentation of the industry was confirmed, as was maturity. The seven sampled states included a total of 1,362 medical aesthetics practices that offered a combination of injectables, skin rejuvenation, body contouring, facials, hair removal, and more.

12.7% the 1,362 practices operated more than one location. However, only 5.6% operated more than two and 3.4% operated more than three. If we take this out further the percentage drops significantly. What this data may imply is that aesthetic practice owners struggle to get beyond one location and those who do find it very difficult to expand beyond three.

The reasons are obvious and best stated by Michael Gerber in his book The E-myth Revisited and expanded upon here. Entrepreneurs who work IN their business do not have the time nor the energy to do what it takes to grow their business to its fullest potential by working ON it. Who would? The demands of treating patients, managing a team, running the business, and taking care of all the fires that ignite from moment to moment are sometimes overwhelming.

I equate this to the “ahaa” moment parents have when that second and third child arrives. One child may have appeared very doable. After all, there’s two of you and one of them. So, why not have another? However, two becomes a little more difficult, especially if both are in diapers and cars seats. But again, there’s two of you and two of them. Using a sports analogy, it’s man-to-man defense. Very doable, right? Let’s have another!

When the third child arrives, stuff gets real. No more man-to-man coverage. Now its zone defense and at this point any one of those little monsters can slip by you in a flash. Those who know that feeling can multiply it by 10 and you’ll understand how it feels to have more than two practices operating at a time. It is not easy. It is not for the disorganized. It is not for the faint of heart. Expanding beyond capacity is also what can lead to failure. What most need at that point is help. In many cases the best help can come in the form of organized operating systems and resources that allow the business to grow and achieve economies of scale.

If you are an independent owner of an aesthetics practice the time may be right for you to consider selling or bringing on a partner that can help you grow your business. If you are the business you may want to rethink your operational and exit strategy, as few potential buyers are interested in buying a practice that falls apart after the founder exits. Successful businesses are built on systems and people, not one person.

Randy Stepp is a principal with Renaissance Leadership Group. RLG is a full-service medical aesthetics practice development company driven by Purpose, Passion, and Strategy and the goal of helping entrepreneurs realize their vision for their business.

Visit Renaissance Leadership Group at www.renaissanceleadershipgroup.com to learn more.