Your face looks familiar! The “medspa” rollup clones coming to your high street

Disclaimer: Views expressed here are the author's own and based on public sources. The article is intended for informational purposes only. This is not financial advice. Please consult a professional for investment decisions.

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Private equity OBSESSES over healthcare. Dental practices. Outpatient care. Residential care. Radiology. Vet clinics. These are only some of the verticals that have been transformed by financial investors. And yet, until a few years ago, one vertical remained stubbornly impenetrable to all but the smallest of PE. Aesthetic and dermatology practices - also euphemistically known as “medical spas”, or medspas. 

Despite the massive TAM (high single $B in the US alone) and 15% growth rates (source), the high degree of fragmentation (a single medspa brings under $2M / year) presented a formidable barrier to entry. 

A barrier no more. Even though 90% of America’s c.10,000 medspas remain privately owned (source), that proportion is rapidly shrinking as hungry sponsors are taking over first generation rollups. Many of these rollups were incubated within business schools and structured as search funds. 

Enter Aesthetic Partners, a rollup of US based “physician-led medical aesthetics, cosmetic dermatology and plastic surgery clinics”. The firm was established in 2018 by Courtney Ellenbogen, a Harvard MBA (and a former private equity investor). 5 years later, the private equity firm Norwest took a significant minority stake. 

Aesthetic Partners’ success - to date it has acquired about 30 practices - has spawned a myriad of clones. Aggregators with names like Alpha Aesthetics Partners (backed by the mid market healthcare PE specialist Thurston Group); Aesthetic Management Partners (backed by Decathlon Capital Partners); and Ascend Aesthetic Partners (backed by Sheridan Capital Partners). You get the idea!

Not to be outdone, Aesthetic Partners leveraged the Harvard network to clone itself - overseas. Thus, in 2022, was born the British company Advanced Aesthetics Partners, or AAP. Led by Yannis Slibi, a former McKinsey consultant and a Harvard MBA. Based on Yannis’ Linkedin profile, to date AAP has completed 3 acquisitions. 

We are aware of at least dozen aesthetics and dermatology non-sponsored rollups that are actively investing across Europe. It is only a matter of time before these too are sold to private equity. It is not too late to jump in!   

In this article, we detail:

1. The investment thesis for medspa rollups

2. How AAP structures deals - and why rollovers are key

3. Who is backing AAP - and on what terms

The investment thesis for medspa rollups

For investors, the attraction is manifold:

• Longer lifespans = people wanting to look better…irrespective of the macro cycle 

• Growing acceptance of cosmetic treatments among younger generation 

• Insurance reimbursement provides stable income while cash services offer higher margins

• High (c.70%) percentage of returning customers (source)

• A diversified business model that combines medically necessary procedures (skin cancer screenings, acne treatment) with cash-pay cosmetic services

Moreover, single-location practices account for the vast majority of the market. Setup costs are low because the footprint is low. At the same time, in common with other healthcare verticals, these small businesses lack the resources and the know-how to drive customer loyalty and upsell.  

As with other SME rollup strategies, the potential for multiple arbitrage is enormous: 

• A single site practice may be valued at low-to-mid single digit EBITDA multiples

• Practices with 2-3 locations change hands for high single digit EBITDA multiples

• Larger multi-site businesses trade for double digit EBITDA multiples

How AAP structures deals - and why rollovers are key

Let’s take a look at AAP’s first acquisition: Simply Clinics. It has 25 employees “based within 6 buzzy regions" in London. 

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