Unlocking Value In The MedSpa Sector: A Financial Due Diligence Perspective

I. Executive Summary

The medical spa (medspa) industry is experiencing a surge in consumer demand, driven by evolving beauty standards, wellness trends, and the rise of cash-pay healthcare models. This growth has attracted significant private equity (PE) interest, leading to a wave of consolidation and roll-up strategies. However, the unique operational and financial characteristics of medspas require specialized financial due diligence to ensure successful investments. Ankura, with its deep expertise in healthcare transactions, is uniquely positioned to support investors in navigating this dynamic landscape.

II. The Market Opportunity for Investing in MedSpas

Medspas sit at the intersection of healthcare and consumer services, offering non-invasive aesthetic treatments such as injectables, laser therapies, and body contouring. The U.S. medspa market was valued at over $18.0 billion in 2024 and is projected to reach $49.0 billion by 2030, growing at a 15% CAGR.^[1]

This growth is fueled by:

Demographic tailwinds: Aging population and increased focus on wellness.
Cultural shifts: Greater acceptance of aesthetic treatments.
Recurring revenue models: High customer retention and repeat visits.
Cash-pay structure: Eliminates reimbursement risk and enhances margins.

With over 10,000 medspa locations in 2024 and projections exceeding 12,000 by 2026, combined with a fragmented ownership landscape, the sector presents compelling opportunities for consolidation and value creation.^[1]

III. Private Equity Interest and Success Stories

Private equity firms have recognized the scalability and profitability of medspas. Some examples of key players include (among others):

Advanced MedAesthetic Partners (AMP): Partnered with 14 medspas, focusing on strategic investments and operational support.
MedSpa Partners (MSP): Acquired over 40 clinics across North America, backed by a $275 million continuation fund anchored by Morgan Stanley PE.
Aesthetic Partners: Grew to 20 practices through acquisitions and new openings, supported by Norwest Venture Partners.

These firms employ a buy-and-build strategy, rolling up independent clinics under unified platforms to achieve economies of scale, streamline operations, and enhance brand equity.

IV. Unit Economics of MedSpas

Medspas boast attractive unit economics^[1]:

Average annual revenue per location: approximately $2 million.
Average spend per visit: $536, with 2–4 visits per year per client.
High-margin services: Injectables and skin treatments dominate revenue mix.
Cash-pay model: Enhances liquidity and reduces billing complexity.

The recurring nature of treatments (e.g., Botox every 3–4 months) creates predictable revenue streams and high customer lifetime value.

V. Financial Due Diligence Focus Areas

Financial due diligence in the medspa sector must address industry-specific challenges:

1. Revenue Recognition:

- Adjust for prepaid packages, memberships, and gift cards.

- Normalize cash-basis accounting to accrual for accurate revenue and EBITDA trends.

2. Expense Analysis:

- Identify discretionary spending and non-recurring costs.

- Evaluate vendor contracts and cost structures.

3. Service Mix and Pricing:

- Assess profitability by treatment type.

- Analyze pricing strategies and discounting practices.

4. Operational Metrics:

- Staff productivity, utilization rates, and client retention.

- Technology adoption (e.g., EHR systems, CRM platforms).

5. Compliance and Licensing:

- Ensure adherence to medical oversight requirements.

- Review clinical governance and risk management protocols.

VI. Case Study: Enhancing Financial Clarity and Transaction Success; Ankura's End-to-End Support in a PE-Backed MedSpa Roll-Up

Client: A mid-market private equity firm executing a multi-state medspa roll-up strategy.
Challenge: The client faced significant variability in financial reporting across the various target medspas, each using different accounting methods and service models. Accurate financial normalization and post-transaction planning were critical to the success of the platform.
Ankura's Role: Comprehensive Financial Due Diligence and Transaction Advisory Support

Buy-Side Quality of Earnings Analysis:

Evaluated over 20 acquisition targets.
Focused on revenue recognition complexities, including:
- Prepaid treatment packages
- Membership programs with monthly billing
- Gift card liabilities and redemption patterns
Conducted a detailed cash-to-accrual conversion, estimating timing differences in revenue and expenses to reflect true economic performance.
Recast financials to align with the client's chart of accounts, enabling seamless integration into the platform's financial systems and reporting structure.
Estimated net working capital targets, accounting for prepaid liabilities, inventory levels, and timing of vendor payments to support purchase price adjustments and working capital true-ups.

Post-Transaction Support:

Assisted in developing post-close budgets for each acquired location, incorporating historical trends, seasonality, and anticipated synergies.

Sell-Side Advisory:

When the platform sought additional financing to fund further acquisitions, Ankura supported the sell-side diligence process:

Refreshed Quality of Earnings reports to reflect updated performance and integration progress.
Provided lender-ready financial packages and operational KPIs.
Facilitated management presentations and Q&A sessions with prospective lenders and investors.

Outcome:

The client successfully acquired and integrated the initial targets, secured additional financing for expansion, and positioned the platform for a strategic exit. Ankura's involvement across the transaction lifecycle ensured financial clarity, operational readiness, and investor confidence.

VII. How Ankura Can Help

Ankura offers a multi-disciplinary approach to financial due diligence, tailored to the medspa sector. Ankura's Transaction Advisory team brings deep expertise in the medspa sector, having supported over 30 transactions across buy-side and sell-side engagements. Our professionals understand the unique business model and market dynamics of medspas, including the cash-pay structure, recurring revenue streams, and service mix economics. Our commitment to high-quality service and actionable insights enables clients to make informed decisions, mitigate risks, and unlock value throughout the transaction lifecycle.

Ankura Differentiators

Deep experience in medspa transactions with over 30 deals completed
Expertise in revenue recognition, cash-to-accrual conversions, and net working capital analysis
Strong understanding of medspa business models and market dynamics
High-quality service delivery across buy-side and sell-side engagements

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