Maximizing Valuation and Outcomes for Practice Owners: A Conversation with Dana Jacoby 

As a practice owner, understanding how to maximize the value of your practice is critical. I recently interviewed Dana Jacoby, President and CEO of Vector Medical Group, an operational and strategic consulting firm focused on the healthcare sector, to discuss building value in a dermatology and aesthetics practice and optimal ways to achieve full value for that business. 

THE SURGE IN AESTHETICS MARKET M&A ACTIVITY 

Clint Bundy: The dermatology market has been consolidating for close to a decade. A lot of practice owners in the aesthetics space, especially post-COVID, have seen a real uptick in mergers and acquisitions and calls from buyers, investors, and even brokers or investment bankers. The question we often get, and I’m sure you do, too, is: Why is the aesthetics market such an appealing market right now? 

Dana Jacoby: The industry is indeed white-hot. It’s fascinating, and as you know, both of us have been in the aesthetics space for decades, witnessing its ebbs and flows. But I’ve never seen anything like the current volume of inbound calls that my clients—med spas, plastic surgeons, and cosmetic dermatologists—are getting. 

One reason is the fragmentation in the industry. Med spas are highly fragmented, with many individual owners unable to achieve economies of scale. The average med spa in the US generates about $1 million in top-line revenue. Larger groups or consolidators have access to efficiencies through shared marketing, payroll, and revenue cycle management. 

Another explanation is that of attractive pay models. Investors are drawn to cash-pay models in aesthetics as they bypass traditional healthcare reimbursement challenges. Reimbursements in traditional healthcare are declining by approximately 4% annually, but the cash-pay model in aesthetics offers a more direct revenue stream. 

Shifting demographics also play a role. Interest in aesthetics is growing across all age groups, from baby boomers to Gen Z and even Gen Alpha. Younger generations are increasingly seeking wellness and aesthetic treatments, indicating a broadening market appeal. 

The convergence of all of these factors makes the aesthetics market highly attractive for growth and investment. 

UNDERSTANDING THE TYPES OF BUYERS IN THE AESTHETICS MARKET 

CB: As a follow-up, the terms “buyer” and “investor” can be quite ambiguous. From your experience, especially in the aesthetics space, how would you define these groups? 

DJ: The universe of buyer options can be broken down into several key categories: private equity groups (PE), family offices, and strategic buyers. PE is private money, rolled up into an investment fund, provided by high-net-worth individuals, pension funds, or institutional investors. Investments are referred to as platforms and are typically held for 3 to 7 years before the platform is sold by the PE, providing a return to the fund and its investors. PE activity has been robust in medical dermatology for over a decade. Furthermore, significant PE activity is seen in cosmetic dermatology, med spas, and recently in plastic surgery. 

Family offices have generational wealth from families like the Rockefellers or Waltons. Family offices invest long-term, often holding investments for longer than the traditional private equity group. These groups are increasingly active in the aesthetics space. It should be noted that private equity groups and family offices can also be labeled as financial sponsors or institutional investors. 

In healthcare, strategic buyers could include aesthetics and/or dermatology platforms backed by large integrated healthcare entities; independent physician groups and multi-specialty organizations; hospital systems and consumer-driven entities (such as Walgreens, Walmart, and CVS); and surgical companies or other health-related affiliates 

UNDERSTANDING BUYER INTENTIONS 

CB: Can you elaborate on how a practice owner should view an offer submitted by a buyer on an unsolicited basis? 

DJ: I often get calls from practice owners saying, “I just received a letter of intent or an indication of interest.” That’s essentially a pre-nuptial agreement—you’re on the runway to get married. The person on the other end could be from a financial sponsor or from a strategic buyer. There are good buyers and not-so-good ones, and it’s vital to understand who you’re dealing with. 

When we get that first call, it’s all about education before anyone signs anything or even agrees to a dinner. While it might seem innocent to go to dinner, in this context, you’re essentially on a first date for a prenup, which is an aggressive approach to what should be a much more informed process. It’s crucial for owners to get educated and truly understand the game they’re playing. 

EVALUATING BUSINESS VALUATION AND STRATEGY 

CB: How should business owners evaluate their valuation, the business sale options, and think strategically, with an offensive mindset rather than a defensive one? 

DJ: At a minimum, every practice owner should reach out to an investment bank who specializes in this space and sector of healthcare. In addition, they may want insights from a strategic consultantancy group. It is important to have an experienced advisor involved to get educated on the valuation ranges that the business could sell for in a competitive process. It’s also important to understand who will pay those transaction value amounts, and an experienced advisor will have the right rolodex. The difference lies in who you surround yourself with—that makes all the difference in achieving a successful exit. 

There are several factors in the aesthetics space that can significantly impact whether your valuation is higher or lower. For example, gift cards or personal expenses being written off through the business can affect the bottom line. These amounts and line items can potentially be adjusted as add-backs during the valuation process. Another example is having clean, well-prepared books and a capable finance resource in place to manage the company’s financial systems. Valuations and due diligence are a critical negotiation point around a company’s numbers. A buyer or investor is looking to negotiate those numbers as much as possible so they can acquire the business at a lower price. 

What we’ve seen with buyers is they may throw out a number—whether too low or too high—that isn’t truly reflective of the company’s value. By having proper advisors in place, and by understanding potential valuation ranges, an owner can determine the right time to speak with multiple buyer options through a competitive process. 

CHALLENGES IN M&A: BUYER RETRADES AND DUE DILIGENCE ISSUES 

CB: I hate hearing stories about buyer retrades (adjusting a final offer price down from the original offer) because the company financials weren’t what the seller and buyer thought they were. Or blown deals because something unexpected came up during due diligence. 

DJ: Absolutely, Clint. It’s disheartening. As a business owner, you’re putting everything on the line, and if you don’t plan wisely, the experience can sour you on the whole process. But then we also have clients who’ve exited and say it’s the best decision they’ve ever made, creating generational wealth for their families. The risk of retrades and blown deals can be mitigated with quality preparation, a strong advisor team, and a competitive process. 

Clint Bundy is a Managing Director with Bundy Group, a healthcare focused Investment Bank and M&A Advisory firm. 

Dana Jacoby is the founder/CEO of Vector Medical Group, a consultancy group focused on healthcare M&A and strategy.