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April 2, 2024

How MSOs Value Your Medical Aesthetics Practice

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Written by Josh Swearingen | Director at TUSK Practice Sales


Much has been made about private equity entering the medical aesthetics space over the last few years. To be truthful, the landslide of marketing, information and recognition of new private equity backed MSOs has only begun. As industries evolve, this will inevitably lead to stiffer competition for patients, higher valuations for private practices (prospectively yours), and significant opportunity for entrepreneurially minded owners with an eye towards the future. With that in mind, it becomes increasingly important to determine how PE views your business as a prospective asset, in preparation for whatever transition opportunities present themselves to you down the road.

This conversation, in order to be exhaustive, has to cover a myriad of topics including private practices, group practices, platform businesses and the like. To break this down, the latter two options will have to wait for another day/publication. Today, we’ll be focusing exclusively on private practices and how to position yourself to maximize value with a prospective PE backed buyer.

So, with that in mind, here are a few high-level considerations that come into play when a PE backed group evaluates and ultimately submits an offer for your medical aesthetics business.


Provider Concentration

When an educated buyer looks at your business, the primary focus of the valuation and closing process is risk mitigation. Where is there risk within the business? Can it be addressed and mitigated? If it can’t, how much are they willing to take on AND, how does that impact the valuation. More risk = lower valuation. Less risk = higher valuation. It’s that simple. So, as they assess your business, is the revenue concentrated on one primary provider NP/PA/MD or is it evenly disbursed across multiple providers AND categories. IE – several RN’s, an aesthetician, a healthy retail business and regularly recurring membership revenue? This is generally referred to as “key man risk”. As in, if an employee is unable to do their job, how much does it impact the business. As you assess your business, figure out what your revenue streams look like and do your best to diversify those as much as you possibly can. The best thing you can do as an owner is make yourself expendable. It will dramatically increase the value of your business.


Patient Stickiness

The beauty of the medical aesthetics space is the recurring revenue generated by much of the patient population. Primary care providers see their patients on average, every 3 years (although they would love to make that annually). Dentists hope to see their patients twice a year but have to be satisfied with an average of once or even less than once per year. Many medical aesthetics businesses see their patients 3, 4 or even 5 times a year for various services. Congratulations, you’re already well ahead of the curve. However, to truly monetize that loyalty, ensure that you have loyalty programs in place. Membership plans are a perfect start, inclusive of points accumulation, automated billing, management of external benefits programs (Alle comes to mind) and recurring scheduling complete with tracking of your enrolled patients. All of these will help to quantify the base of your business and quantify the recurring revenue that the buyer should be able to replicate.


Geography/Demographics/Market Positioning

Theres’s little you can do about where your practice(s) are positioned.  Unless you’re just getting started. However, being in a vibrant, growing geographic area with strong demographic indicators (IE – disposable income) is a solid harbinger for success. Nobody knows this better than well educated buyers and PE backed entities. Most of them, if not all, will have very specific geographic parameters they’re looking for in an acquisition scenario and being able to fulfill those parameters is the first hurdle towards a premium valuation for your business. As you’re opening your first, or subsequent businesses, pay attention to population growth, traffic flow, business dilution within your vertical for your given geography, human capital cost and provider availability. These are all tracked by buyers and providing the answers to these potential concerns at the front end can greenlight a premium valuation.


Diversity of Treatment & Revenue Flow

This goes hand in hand with the diversity of provider conversation. Buyers love to see revenue evenly disbursed across several verticals within a practice. If that’s a plastic surgery practice with multiple providers that incorporate med spa services in, or a dermatologist that adds laser treatments and minimally invasive aesthetic services along with retail products, diversification is the key. Your team needs to be well trained in cross selling products and services and the better that is handled from the top down, the more it is reflected in the numbers. And trust me, it will not go unnoticed. Do everything possible to dilute a superstar’s performance and even it out as an average against other revenue verticals.

In short, you are entering the arena of a well-educated, well-funded highly strategic buying world. Understanding the buyers’ goals from their perspective and planning accordingly will go a long way towards fulfilling your objectives in selling your business and help to ensure you receive maximum value for that business. Don’t leave dollars on the table. Plan ahead and be prepared when the time comes.

As an easy precursor, please reach out to TUSK Practice Sales for a free practice evaluation. They’ll run your numbers, evaluate your geography and practice and help to put together a plan for your partnership and eventual exit.


About The Author: Josh Swearingen, Director at TUSK Practice Sales has over 15 years of leadership experience in the healthcare industry, most recently serving as the CEO for Vesper Alliance, an MSO located in Cincinnati and Columbus, OH. Josh is also the Co-Founder of Reverse Aesthetics, a medical spa and anti-aging practice in Columbus, Ohio. Josh received his B.S from THE Ohio State University.


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