Podcast – Navigating The Rapid Growth Of The Med Spa Industry – Healthcare

In this episode of “Counsel That
Cares,” Healthcare Transactions attorney Morgan
Ivey and Skytale Group President and Head of Consulting
Annie Robertson Hockey discuss the rapidly
expanding medical spa (med spa) and aesthetics industry. The
episode highlights the significant growth of the med spa market,
estimated at $16.5 billion in 2023 and projected to reach $45
billion in 2025, driven by increasing consumer demand for
non-invasive procedures such as injectables. Ms. Ivey and Ms.
Robertson Hockey share insights into the factors contributing to
this growth, including changing demographics, the attractiveness of
the cash-pay model and advancements in technology. Additionally,
they discuss the importance of regulatory considerations and the
potential for consolidation in this fragmented market, while
emphasizing the need for businesses to adapt their strategies in
the face of evolving consumer behaviors and operational
challenges.

Listen to more episodes of Counsel That Cares
here.

Podcast Transcript

Morgan Ribeiro: Welcome to Counsel That Cares.
This is Morgan Ribeiro, the host of the podcast and a director in
the firm’s healthcare practice. Today, I am joined by Morgan
Ivey, a partner in the firm’s Healthcare Transactions Group and
Annie Robertson Hockey, president and head of consulting at
Skytale. And today we’re going to discuss the evolving and
rapidly growing medspa and aesthetics space. And just to set the
stage before we really dive into the details here, I want to
provide some interesting statistics and facts about the med spa and
aesthetics sector. So medspas, these are clinics and centers that
offer a wide range of non-surgical treatments, anything from laser
treatments to injectables, such as Botox or fillers, and really any
other aesthetic procedure such as facials, etc. So for med spa and
aesthetics, the market value in 2023, it was estimated at $16.5
billion, and it’s projected to reach $45 billion. And between
2022 and 2023, the number of med spas grew from around 9,000 to
over 10,000. So very rapid growth just in a 12-month period. And as
the number of medspas continues to grow, it remains a highly
fragmented industry. And the category continues to grow despite
some of these other economic headwinds that we’re seeing. And
of course, I think one of the things that we’ve seen just as
consumers and looking at the market as injectables, of course, are
one of most in demand services. Today, we’re going to dive a
little bit deeper into some of these trends and how investors and
medspa owners should be thinking about these trends, any legal and
regulatory issues to consider and much more. So with that
introduction, I want to turn it over to Annie and Morgan to share
more about their practices and the work that they do in the medspa
space. Annie, I’ll start with you

Annie Robertson Hockey: Wonderful. Well, thank
you so much for the introduction. And it’s a pleasure to be
here. So as you mentioned, I am president and head of consulting at
Skytale Group, which is a investment banking and management
consulting firm focused in healthcare. On the investment-making
side, we do both buy-side and sell-side work. Although in the
medical aesthetic space, we do a lot of sell-side work, often
representing owners, founders who are looking to raise outside
capital or sell, right, to financial sponsors such as private
equity or family offices, etc. On the management consulting side of
the house, which is the side of the house that I oversee more
directly, we do engagements all the way from a startup founder or
owner with an idea through, all the way through private equity,
financial sponsors who are looking to invest in this medical space,
and platforms. So with owners and providers who perhaps own medical
spas, financial sponsors who are looking to invest in this space,
as well as those platforms, whether or not they’re private
equity backs that are looking for just help with strategy, you
know, pricing, go-to-market, corp. dev, etc. So, happy to be here
and dive into one of my favorite topics.

Morgan Ivey: So thank you Morgan and thank you
Annie. It’s a pleasure to be speaking with you both today. So
as Morgan mentioned, I am a partner with Holland & Knight. I
sit in our Nashville, Tennessee, office and I, similar to Annie,
work with a lot of the same clients. So I work often with founders,
owners of healthcare companies, as well as investors, private
equity firms, family offices, independent sponsors and their
investments, their portfolio companies in the healthcare sector.
And I do spend a lot of time with medical spa clients or clients
who are interested in that and adjacent spaces. We’re primarily
in the middle market and lower middle market. That’s a very
broad category. And we enjoy working not only on the M&A side,
so we help people transact, but we’re also sort of an extension
of your business thinking arm. So we are sort of like outside
general counsels and advisers. We help keep in mind your
operational needs, your RCM needs, your payroll and HR needs as
they arise, in addition to how that may impact both your more
imminent transactions and future liquidity events when working with
sponsors and investors in those transactions. So it’s a
pleasure to be speaking with you both. One of my favorite topics as
well.

Morgan Ribeiro: Wonderful. Thank you both for
those introductions. Obviously, our listeners can tell that you
both have a lot of experience working in this sector of healthcare.
As I mentioned in my introduction, we’ve seen a lot of growth
in this space. Investors and advisers like yourselves tracking
medspas say that there’s ample opportunity for expansion and
building platforms in a highly fragmented market comprised of
smaller clinics. And the medical aesthetics industry is
experiencing significant growth. And a lot that is driven by, you
know, as I mentioned earlier, the increasing consumer demand for
non-invasive procedures. But, and I think there’s a number of
other drivers that we’re seeing. So would love to hear from
both of you just more background on some of the factors that are
driving the growth of the space. Annie, I’ll maybe look to you
first to maybe mention a few of the drivers that you’re seeing
in your work with medspas.

Annie Robertson Hockey: Yeah, this is a
question I’m asked about a lot, especially in light of sort of,
you know, current macroeconomic factors, and one of the things that
I always come down to is the pursuit of youth and beauty and health
has been a pursuit that is, sort of proven that it is maintained
over time. It’s always been here, and it will always be here.
And so, I think there continues to be growing interest in sort of
more of the non-invasive types of cosmetic procedures and
preventative aesthetics care. And I think there are many factors as
to why kind of consumer demand is continuing to grow. And, you
know, I think social media and other platforms are really
normalizing aesthetic procedures and driving awareness there.
It’s also becoming something that is not just limited to older
folks, wealthier folks, but is really becoming a lot more sort of
socioeconomically accessible across the socioeconomic spectrum.

I think that a few of the things that we’re seeing really
expands that TAM or that total addressable market is just the
expansion of demographics. We’re seeing shown interest in this
space. Men have historically been a small but now very much growing
segment. Their estimated share of the market was about 5 percent
previously. I think we’re expecting it to be over 10 percent
by, say, the end of 2025. We’re also seeing more and more
younger folks entering the industry, even from, say, a preventative
perspective. I think in 2023, 42 percent of patients were
millennial or Gen Z sort of age range, and that compares to 25
percent in 2017. So, you know, think about that type of growth in
the recent years is pretty remarkable. And I would just say that
the kind of addition of longevity and weight loss and functional
wellness into this space, we really think is only increasing that
addressable market or a number of folks who would be potentially
interested in exploring some of these services. I will also say
just in terms of money flowing into the space, the industry has the
three characteristics that are just very compelling to private
equity and other financial sponsors. You know, one is there’s
recurring revenue. It is deemed to be sort of recession-resilient,
if you will, or resistant. And it’s also private-pay cash-pay
model. So if you think about those three things, in terms of
recurring revenue, what we tend to see is that once someone starts
a procedure like a neurotoxin — say, that would be say Botox
or a Dysport or a Letybo, one of those neurotoxins or even dermal
fillers — it tends to be something that they come back to. We
will see folks stretch out their treatments if financials are
tight, but we do rarely see folks stop altogether. So, you know,
recurring revenue, good. We like that. The other piece being, you
now, this cash-pay model. One of the features of healthcare that
can be so tricky is your receivables and knowing when money is
coming in and how can you predict that. And sometimes when you
treat a service, you actually don’t know what you’ll be
compensated for that service. And this is all-cash pay, which of
course is incredibly compelling, either for the consumer or the
healthcare segments of a private equity firm. So again, just
capital coming into the space is really expanding and upleveling
the market from our perspective. Morgan, I’m not sure if
there’s anything else you want to add there.

Morgan Ribeiro: Yeah, and I think too, I mean,
Morgan, I know we’re going to get into it later, but just on
the private-pay model, I know that that then of course bleeds into,
from a regulatory standpoint, some of the, you know, lighter on the
regulatory front given, you now, the lack of government pay here.
But any thoughts on the pay model or other kind of drivers of this
growth in the space?

Morgan Ivey: Yeah, thank you Annie and Morgan.
On the private pay, you’re exactly right. There’s certainly
an attraction there because historically investors in the
healthcare sector have gotten accustomed to operating in a
regulated industry, and when there’s government receivables
involved and even commercial receivables in certain areas in
certain states — but especially when there’s government
receivables involved — you have to operate under a higher
standard of compliance and really make sure you’re paying very
close attention to your billing and coding protocols. That’s
not as applicable here. I say “as applicable” because
there are certain exceptions where a state may have, for example,
an all-payer statute. Florida has the Patient Brokering Act as one
example where it doesn’t matter who the payer is, even for
patients, they still are subject to heightened scrutiny. But that
aside, not exposing the company to potentially troubled damages. So
under Medicare, they can seek three times whatever the overpayment
may be. It is automatically just introducing a lower risk category.
And so not only does that impact investors, but it indirectly
impacts investors because now you have lenders who are more
comfortable with this. You have LPs who are comfortable with this.
And you also have insurance carriers. So a rep and warranty
insurance perspective, carriers historically have shied away from
underwriting healthcare deals primarily because of the government
reimbursement risk and the travel damages, potential exposure. They
did not want to underwrite that higher risk. That’s not
applicable here. And so we’re seeing more of an appetite
because they’re able to more easily get the support from their
lenders, their investors and their underwriters to the extent RWI
is applicable. So that certainly can grease the wheels, so to
speak, for investors in the space.

Another couple of areas or I suppose bases for increased
interest in this space would be the technological advancements and
the promulgation of the MSO, the management services organization
model. With technological advancements, we’re seeing a stronger
and stronger interest on the employee front in working in a
practice or a space with high technology and having an industry or
a practice where an investor has come in and ensured that there is,
even if it’s not the top of the line technology, but if it is
just good technology, perhaps better than something that perhaps a
single founder owner may be able to have in place. It’s more
attractive, and they’re able to combat some of the headwinds
that are faced by the labor industries and labor challenges that
healthcare operators and investors are facing. So if you can create
an environment that has some of these technological advancements,
that puts a fresh coat of paint on the walls and has the support
staff and the business acumen to help the practice operate more
seamlessly, it’s just more attractive for an employee,
especially young employees in medspas. You’re looking at
injectors and nurses, RNs. It’s comforting to come to work in
an environment where you know you have to support the tools and the
camaraderie of the other people and personnel that just foster a
really happy culture and a culture of retention. And then lastly,
the MSO structure that we are very familiar with in more regulated
healthcare industries that the medical spa industry historically is
less familiar with is really helping whet the appetite for more
tried and true healthcare investors in this space because it is
sort of preemptively structuring in a manner that will pass muster
under these new healthcare laws coming into effect on a
state-by-state basis. From a regulatory perspective, it’s a
little bit like the Wild, Wild West right now, and we are seeing
states rapidly adopt laws, statutes and even put in place FAQs on
medical board websites that have caused these medical spas to have
to retroactively adjust their operations. And so to preempt that,
if you implement an MSO structure, it doesn’t matter if these
laws come into effect. You are structuring this in a conservative
manner that allows an investor to come in and know that, even if,
for example, Pennsylvania were to mirror Ohio laws that have come
into effect impacting supervision ratios, scope of practice
requirements or, even from a corporate practice perspective, come
out and said that a management company cannot employ physicians
because there’s some ambiguity in Pennsylvania as to whether or
not that’s permitted. And so some operators in the medical spot
industry are having, for example, management companies employ
licensed providers. And so I think preemptively adopting an MSO
structure is making this a more attractive, conservative investment
for investors, lenders, LPs, carriers.

Annie Robertson Hockey: And that’s even
— I’ll just chime in really quickly — that’s
actually something that we’ve seen shift over the past few
years with our consulting. Entity structuring used to never really
be a topic or a concern that was brought up to us when we had newer
medspas, you know, either just beginning or seeking help with us,
you know in terms of preparing to go to market for some sort of
transaction, and that has very much entered the dialogue as a
question that folks are asking sooner rather than later, kind of
understanding that there might be implications down the line in
terms of how they structure their entity, their businesses earlier
on. And we love that, we welcome that, we connect them with
incredible legal counsel to make sure that they are set up for
success and really just keep their options open, should they want
to do anything with their business later.

Morgan Ribeiro: Great. And, you know, I think
framing this just a little bit differently, we talked about the
drivers of growth, but we’re obviously, you know, looking at
how this market is very right for consolidation. I mentioned
obviously the growth of the number of clinics and medspas that
we’ve seen over the last few years. But Annie, maybe you could
kick us off with this, but just like, why are we seeing that kind
of consolidation? And why is it still right for that kind? Where
are we in the evolution of this market?

Annie Robertson Hockey: No, it’s a great
question. I mean, I think we’ve just spent some time talking
about how, you know, first of all, this is just a really attractive
asset. You know, we’ve seen a huge rebound since the COVID-19
pandemic. To put it in perspective, estimates show that revenue,
there was revenue decline of sort of, I think, approximately 25 to
26 percent in 2020. But the industry really bounced back in a
significant way in 2021, increasing by a rate of almost 70 percent,
right? So just showing that resilience. And I should mention, those
are stats from the American Med Spa Association, AMSPA, which we
may refer to during this podcast a few times. Yet it’s still so
fragmented, right? We are still really at the early innings of what
this could look like. Just to put it in perspective, approximately,
I think we think about 81 percent or 80 percent are still single
locations. And over 95 percent of medspas are not owned by private
equity sponsors. And 68 percent of practices are owned by one
single owner. And just to put those numbers in perspective, I
think, depending on who you talk about, I think the thought for
dental, a corollary industry, is that we’re about 30 to 40,
somewhere in there, percent consolidated. And if you think about
how long dental has been sort of within the ecosystem of private
equity consolidating, that means we have years, if not decades, to
get nearly to that number. And so for us, this is really exciting.
To Morgan’s point, it’s a little bit of the Wild West, but
what that means is there’s so much opportunity if you do things
the right way. And we’re excited to see how it continues to pan
out.

Morgan Ribeiro: Awesome. Morgan, anything
you’d add to that? I mean I think obviously you know we have a
lot of clients that are investing in the space, are interested in
investing in this space, as well as, you know, on the sell side as
well, and I think there are certainly, you know, some other kind of
investment trends. Maybe you could touch on that, Morgan.

Morgan Ivey: Yeah, certainly. A couple come to
mind that I encounter pretty often, and one is the growth strategy,
organic versus inorganic. And I think I usually see a combination
of the two. I think there’s a thesis around both that makes
sense in this industry. Finding an attractive geography and really
developing some density in that area and building some Danobos
around it, is a thesis that I’ve heard and seen clients execute
on very well. So that’s one trend that I have seen in this
industry specifically. And a related point, I think, is that
we’re seeing investors often say that they will dip below their
typical floor just to tap into this industry if they find a good
asset. So to Annie’s point about how 80 percent is a single
location and 68 percent is a single owner, these medical spas often
do not have much size to them. And that makes it all the more ripe
for consolidation. And so I think investors are viewing this
industry with an eye towards willing to dip below, find some
geographically complimentary areas, find some really good assets
with good operators, good people, where there’s a lot of
opportunity for improvement in the areas, where those with business
acumen are really primed to do well and bolster the success of a
company. So marketing, bookkeeping, recruiting, HR, and finding
those assets that are attractive for that type of consolidation, we
are seeing investors dip below their typical floors when it comes
to medical spas.

Morgan Ribeiro: As we work in different sectors
across healthcare, I think there’s different variables that
then dictate the type of deal structures that we’re looking at
in these transactions. Morgan, are there any kind of deal
structuring trends that you’re seeing in the medspa space?

Morgan Ivey: Yeah, I might have touched on it
earlier, but it’s the MSO structure is really sort of taking
over in this industry from what I’m seeing. Every now and then
someone will ask about deploying a franchise model, which is
historically been the dominant structure for medical spas. But I
think people in the space — investors, owners and operators
— are all recognizing that if they want to position
themselves for growth and potentially future liquidity events and
investments, capital raises, whatever that may look like, it’s
just a more flexible, more common denominator for just to implement
and deploy the MSO model. It allows for physician oversight. You
don’t have to worry about whether or not a state requires a
physician or an APP. You can have that physician ownership there.
And it just is a more flexible conservative structure. So we are
seeing that not quite universally, but almost universally, from a
transaction structuring perspective.

Morgan Ribeiro: And Annie, I’m curious, I
mean, you guys, outside of the deal context, like when you’re
being brought in by these practices, particularly on the consulting
side, like are there, we’ve kind of touched on HR operations,
are there kind of main buckets where you’re getting a bulk of
the questions or where they need outside advice?

Annie Robertson Hockey: It’s such a good
question. I mean, folks will come to us all the time really to get
support kind of putting their lipstick on, essentially, before
going to market. I think the metaphor I sometimes use is, if
you’re planning to sell your house, typically folks will paint
the walls, maybe organize, maybe use a stager, and there’s an
outsized return when you do certain things to signal a level of
quality. So a very fundamental basic one is the state of your
finances in your books. If you spend a little bit of time earlier
on getting those organized, not only is it nicer for the buyers to
look and to see what’s actually happening in the practice, but
it signals competency of numbers, it signals data-driven decisions,
it signals a degree of professionalism that will merit more times
than not, again, a premium on the purchase price. And the other
thing I’ll mention is, there are a few areas that we do know
that buyers tend to really prioritize looking at. And I personally
think that there are kind of two areas that signal a lot about just
the overall operations and health of a practice. And those are,
provider retention and patient retention, right? And so if you are
running a successful, profitable, efficacious medical spa,
hopefully that means your providers are happy, they have productive
compensation structures that are serving them as well as the
business and therefore staying. Similarly speaking, if you have
happy providers and are delivering quality services, hopefully your
patients stay as well. So there’s some key metrics that we also
really like to focus on to get within benchmark range before we,
you know, we’ll encourage folks to go out to market if
that’s their goal. Again, because that little bit of investment
earlier on tends to be well worth it.

Morgan Ribeiro: Awesome, I want to come back in
a minute to a couple of the things that you mentioned, but just as
we think about kind of the overall operations of these practices,
Morgan, from a legal standpoint, outside of the deal context again,
like are there certain legal considerations that either investors
or current medspa operators need to consider?

Morgan Ivey: Yeah, certainly. And I might have
mentioned it briefly earlier, but we see oftentimes when we are
working with a medical spa, be it a founder or an investor,
they’re often asking a lot of questions about supervision and
scope of practice. Those are two of the areas that are ripest for
foot faults and mistakes because they also directly impact margins.
And so it can be tricky to find that balance of both maximizing
margins, but also not ignoring the appropriate supervision ratios
that are required. And the difficult aspect is — or one of
the challenges is — that there is no black and white answer
to what is appropriate supervision in every single state. It’s
not as if the same ratio of APP to nurse or physician to nurse is
the same in every single state. And sometimes it’s, usually it
is silent. It’s wonderful when we find a ratio in black and
white, but usually it’s not there. And so, we’re often
getting questions about can the physician be remote in another
state and provide a telehealth good faith examination, and then can
the RN perform the rest of the procedure? It depends on a lot of
things. It depends on what the contract says. Is telehealth
permitted? Are you billing under the physician’s number, or are
you billing under somebody else who’s on site? How accessible
is the supervising person, physician or mid-level? And what
procedure is being performed? Is it an ablative laser or is it a
non-ablative laser? Those types of things. So we are often stepping
in to help clients navigate those issues because they don’t
just impact regulatory compliance, they impact the bottom line. So
those are two of the most critical issues that we see and often
come in to help clients assess.

Morgan Ribeiro: So we talked about this
earlier, Morgan, you were touching on the technological
advancements, and obviously from a recruitment standpoint, not only
from the folks that are working in the clinics, but also patients
and otherwise, they want to be somewhere that’s innovating and
has the latest and greatest treatments. And we’re seeing that
from anywhere from new injectables coming on the market to new
types of facial procedures, everything, as well as technology. And
as the market becomes more competitive and more and more practices
are popping up, what are some of the ways that you have seen
practices, Annie, kind of keep up, and how do they market to
patients as well? Because I think that’s a huge piece of this,
is not only do you have those latest and greatest procedures or
technologies, but how do you communicate that and share that with
your patients to be able to pull it in as more of these clinics are
popping up? Like Morgan and I sit in Nashville, and it seems like
every day there’s a new one coming up on the corner. And so how
do you kind of stand out in this crowd, if you will?

Annie Robertson Hockey: Yeah, I mean, I would
say first of all, how fun is it that as part of my job, you know,
it’s a requirement for me to stay apprised of the latest and
greatest in medical aesthetics procedures, right? And it is such a
fast-paced industry in terms of both new treatments, right, new
lasers, new types of pharmaceuticals, but also new techniques. I
think something that we often forget to talk about is that
aesthetics is both an art and a science. So, you know, filler, for
example, I think we have seen in the past year or so, folks veer
more towards a natural look versus the plump lips that we saw a few
years ago. That doesn’t mean that folks are not using filler,
it means that folks are using filler in different ways, maybe a
little less pronounced, right? So there’s different areas and
techniques by which the same services are even delivered, and, you
know, in terms of keeping up, I mean, there are the traditional
ways, you know trade shows in this industry are big. I’m
getting ready to go to Vegas in a few weeks. And it’s been
interesting in that we’re seeing more and more trade shows
actually purchase medical aesthetics types of conferences just to
show the increase, again, attention to investment in the space.

Another really unique aspect of this industry is that vendors
are also much more involved in education than they often are in
other industries. So I’ll give you an example, which is that,
again, I mentioned neurotoxins earlier, Botox, which is an allergen
product, Dysport, which a Galderma product. What we see is those
companies are directly responsible for going into practices and
training providers free of cost. And so, you know, if there’s a
new product to market or a new technique to market, what’s
happening is those companies are investing in huge training fleets
and sales forces to come in and educate. So there’s lot of kind
of ground up education that’s happening at the provider level.
That’s really fascinating to see. That said, you know, all of
those kind of traditional mechanisms aside, you know, I think the
best practices in my experience are what they do best is listen. So
they are listening to their providers and they’re listening to
their patients and have the appropriate feedback channels built in
to say, wow, I’ve heard patients ask for this one laser time
and time and time again, how has that surfaced to me as a
decision-maker at the practice to look into whether or not
that’s something that we should invest in? Again, that might be
keeping up with the latest trends. That might be more recently
focusing on the interplay between inner and outer health. So adding
new modalities like hormone replacement therapy, HRT, weight loss,
etc. And really making sure that those are incorporated into the
practice, in the practices, and, you know, in terms of marketing,
right. So let’s say I’ve listened, I’ve brought in
these new services, of course, what you need to then focus on is
bringing folks in the door. And I think in this changing evolution
of consumer behavior, really meeting folks where they are is so
crucial.

So patient acquisition techniques 10 years ago really aren’t
where we’re acquiring patients today. TikTok is a very large
patient acquisition channel. Even booking, really interestingly,
we’re seeing more and more, the higher and higher percentage of
patients booking on their phone versus booking even on a desktop or
calling a practice. And so how do we make sure we’re there? And
also how do we make sure that our systems are set up in a way that
we are mobile friendly, right? That we’re not just relying on
spreadsheets and calls and voicemails to get those appointments
booked. The last thing I will say though, because I can’t help
myself, is I think a very easy way to have a practice sort of go
underwater unnecessarily is to actually get too many. And so one
thing that we do see is folks will get really excited about the new
laser, the new cool kit on the block, and purchase lasers that tend
to be exceedingly expensive. And what we always say is having one
quality laser with multiple modalities — having facial,
hydrofacial and having micro-needling — that’s really the
fundamentals of what you need for a practice. And so I would
actually caution folks from always making sure they always, always
have the latest and greatest because that CapEx can be really,
really burdensome if you’re running a lean business.

Morgan Ivey: I’ll echo that. I just was
having a conversation with a medical spa on that very topic last
week, and they had the insight to recognize it themselves and
recognize the need to correct course, so to speak, which actually
makes them an attractive investment for somebody to turn this
around and improve margins because they can simplify, or perhaps if
they have other locations, they can move those lasers, for example,
to a different location. There’s just many more opportunities
for an investor or an existing portfolio company to come in and
find those opportunities. So I completely agree, it can burden the
CapEx heavily if somebody is always looking to purchase the latest,
greatest, most expensive thing and piece of technology and device,
and then have to train people on that new device every single time,
or the new technique every single time, which means they’re
spending time training instead of treating. And those can really
hurt the bottom line, but that also can mean there’s a lot of
opportunity for improvement on the other end, when somebody else
can come in and help course correct.

Annie Robertson Hockey: Yeah, the training,
that’s a really great point. The training piece being so
expensive, in many ways, on a practice. And then just finally, even
from a patient perspective, it can be so overwhelming. I was on a
website today, and I toggled down and there were a million
services, all of which had fancy names. And you know I spend a lot
of time in this space and even I was overwhelmed. So the analysis
paralysis effect can be really real, and having really clear
services that you’re really clear about what they treat, why
they’re efficacious and how they’re delivered, I think,
even from just a patient consumer experience perspective, can be
much more straightforward.

Morgan Ribeiro: Yeah, and I think, you know,
one of the things that we’ve talked about earlier, but
obviously from a healthcare standpoint, right, this is a lower
acuity setting, but these businesses still have very complex
challenges, particularly as they’re expanding, or if you are a
consolidator or an investor and you’re looking to expand across
various, geographic areas, there’s added complexities that come
with that. So we’re seeing only really a handful of these kind
of larger businesses or platforms emerge so far. Why is that, and
what are those kind of barriers to the growth?

Annie Robertson Hockey: I’m happy to chime
in and then, of course, curious, Morgan, if you have any thoughts
there as well. You know, I think, just to answer, you know, in a
really straightforward way, I do think part of it is that we’re
still early. I do think that we will continue to see larger and
larger practices, and my guess is that we will see some of the
platforms start to transact in a year, a year or two, and that will
be really exciting for the industry to see how those trends act,
what those multiples end up looking like. And again, that will sort
of open the industry up to a certain tier of investor that really
just can’t go below a certain check size, even though to
Morgan’s point, we are seeing them come down. But I think, you
know, to your point, Morgan, we also have learned, sometimes the
hard way, that what doesn’t work is to buy a bunch of medical
spas and slap them together, right? It’s a really operationally
complex business, and so there are a lot of logistics and regs and
people involved in this type of business. A few that come to mind
in terms of challenges, all of which can be surmountable, right?
But just challenges to rapid expansion, you know, providers, I
think recruiting and retaining quality providers at this point,
there’s no central accreditation program or system, right, that
is training providers and certifying providers. And so — some
might say not enough — and then also making sure you retain
them can just be, again, something that’s a little bit more
challenging for this type of business. I also think, and Morgan
alluded to this earlier, what can be difficult about expanding
beyond state lines is that it’s an alphabet soup of regulation,
and it is very different state by state. And oftentimes, the main
challenge isn’t knowing the regulations, just the regulation
isn’t clear. And so it becomes kind of a gray area. And
that’s where relying on your legal counsel and your advisors to
help you navigate those waters can be really, I think, important,
in terms of risk mitigation. But oftentimes we’ll see folks
will try to kind of limit their complexity by staying away from
certain states or even staying in a similar MSA or region to just
have one protocol. The last thing I’ll say is there’s this
kind of question I think that tends to be universal in those that I
talk to, which is brand, right? Do I consolidate brands across all
of my locations? Do I keep regional brands? Do I keep individual
brands? And so just thinking through what makes sense from a
marketing perspective in terms of your practices and your patients,
rebranding is really difficult. And so as you expand, folks are
making that tradeoff in terms of what brands in an M&A type of
context, what they keep consistent and what they end up street
mining.

Morgan Ivey: I agree with all of that. I
won’t echo too much of what you said, but I agree from a legal
perspective, just the ambiguous and the different regulatory
schemes that apply and the difference regulatory landscapes that
apply in different geographies make it difficult for a founder to
navigate multiple states and to manage a medical spa in multiple
states. And then the marketing is also spot on. It’s very
difficult to consolidate and have a unified marketing approach
without having that business acumen, that support, from some form
of investor. It just is very difficult for a founder to both run
the clinic and also manage the marketing at a macro level and
execute on that seamlessly. And also to Annie’s earlier point,
as we saw in the dental industry, I think it’s just early on,
and there’s a lot of fragmentation, just as there was in
dental. And there still is in dental, I think you’re right,
Annie. We’re at around 38 percent consolidation for dental, and
it’s been decades. So there just is a lot a fragmentation.
There has not been a lot of private investment yet. A lot of
entrepreneurs are out there catching onto this medical spa trend,
so to speak, and wanting to start them. And I think we’re
seeing more and more mid-levels decide that a medical spa
environment is more attractive than, for example, an emergency
room. And so they may be electing more so now than ever before,
that more pleasant, calm environment than something that may just
be a little bit more stressful where they have less control over
their hours. So I think it’s a combination of all of those
things you touched on.

Morgan Ribeiro: Awesome. Well, I think
we’ve really hit on the kind of high points in terms of growth,
the opportunity in this sector. Of course, some of the challenges
that are inherent in this space and where we see the market heading
over the next few years. Appreciate both of you joining me today,
anything else you wanna, to add? Fantastic. Well thank you
both!

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