30K Feet: Key Takeaways from The Medical Spa Show 2020

Harris Williams professionals regularly attend industry conferences and events. On the flight home, they share key takeaways to help shape your priorities.

Event: The Medical Spa Show 2020

Report by: Corey Benjamin, managing director in the Harris Williams Consumer Group

Event overview: The annual Medical Spa Show is the premier conference and trade show for noninvasive medical aesthetics, presented by the American Med Spa Association.

Why is this an important event for professionals active in the industry?

The Medical Spa Show is the only trade show in the United States focused solely on medical spas and noninvasive medical aesthetics (including Botox, CoolSculpting, dermabrasion and others), and it showcases the latest up-and-coming trends, treatments and technology in the industry. It’s the leading event for any professional associated with medical spas, a sector that is increasingly gaining the attention of investors.

What makes this an appealing space?

The medical spa subsector sits at the intersection of healthcare and retail, providing exciting opportunities for a wide range of investors. Like many areas of consumer healthcare, medical spas are less vulnerable to disintermediation from online retailers and marketplaces than some retail sectors, appealing to retail-focused investors (see Consumer Healthcare: Creating Value by Crossing Industries). The space also provides these investors with unique opportunities to leverage their knowledge of customer acquisition strategies, staffing models, subscription and loyalty programs, and other value drivers.

For healthcare-focused investors, medical spas have more favorable cash flow dynamics than some multisite healthcare specialties. The average medical spa generates around $1.5 million in revenue annually, with a nearly 30% average profit margin.1 At the same time, these businesses require knowledge of compliance and of corporate-practice-of-medicine issues, which most healthcare investors will possess.

For all investors, strong growth and a high degree of fragmentation in the industry provide plenty of opportunities to build platforms of scale—there are roughly 5,000 medical spas in the U.S. alone, creating a $10 billion market growing by approximately 30% each year.2

What trends or issues were top of mind at the event?

Compliance is one of the biggest issues on operators’ minds, especially in light of some recent, high-profile stings that uncovered spas skirting regulations. As the cost and complexity of compliance continue to increase, we believe many individual owner-operators will struggle to keep up, driving more consolidation.

Hiring and retaining employees is another top challenge. As with any retail or healthcare business, it’s difficult and expensive to maintain a talented and conscientious staff. Yet it’s also an important differentiator in this service-driven sector, and can make or break a business. Like compliance, human resources is an area in which larger, more sophisticated platforms can have a distinct advantage.

What are the implications of these trends for buyers?

The fragmentation provides significant opportunities. Very few large platforms exist: Roughly 80% of spas are single-unit owner-operators that are ripe for roll-ups.3 Furthermore, it’s still a young industry that is early in terms of its growth curve. During the conference, a presenter asked audience members if they had been in business for more than eight years—only about 15 out of 1,000 raised their hands.

As with other subsectors of consumer healthcare, the next round of value creation will be driven by investors who can apply proven consumer-facing approaches as well as pure healthcare strategies. In particular, buyers adept in areas such as patient acquisition and retention, new service and program introduction, branding, site selection, and staffing have an opportunity to create game-changing medical spa platforms.

Published February 2020

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