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Following a turbulent election year and a period of widespread economic uncertainty, many are wondering what 2025 holds for the macroeconomy, healthcare sector, and the dermatology and aesthetics mergers and acquisitions (M&A) markets. Alex Chausovsky, MBA, Director of Analytics and Consulting, explores economic and market trends, while Clint Bundy, MBA, Managing Director and M&A advisory expert, delves into consolidation trends and the key drivers shaping buyer activity in the dermatology and aesthetic markets.
Q: With the election behind us and 2024 ending, what should I know about the economy?
Chausovsky: Physician practice owners and dermatology providers should remain informed about broader economic trends to anticipate their potential impact on business operations. As of October 2024, US economic growth has shown resilience, with Real GDP increasing by a moderate 2.7% compared to the same period in 2023 (Q3 year-over-year). Despite earlier forecasts of a potential recession in 2024, the economy exceeded expectations, achieving a “soft landing.”
Graph courtesy of Bundy Group
Consumer-related economic indicators further highlight the strength of the economy. Because consumer spending accounts for two-thirds of US economic activity, its robustness—if not outright growth—by the end of 2024 is particularly encouraging. Additionally, while inflation has not declined significantly in recent months, it continues on a downward trajectory, bolstering household purchasing power and contributing to a more favorable economic environment for healthcare providers.
Q: As a dermatology practice owner, what strategies should I focus on to build a highly valuable practice while adapting to current economic trends?
Chausovsky: Attracting and retaining good talent (especially dermatologists and physician assistants) will remain difficult in the years to come, especially considering leading indicators largely suggest a cyclical rising trend will take hold in the economy by the end of this year and continue into 2025. While tempering expectations for robust growth next year, dermatology industry business leaders and decision-makers should contemplate the potential threat of rising inflation next year and how that could ultimately lead to rising wages and detrimentally impact practice profits. The focus should be on identifying and removing inefficiencies to increase productivity and throughput to offset the potential impact of wage inflation and other factors driving margin compression, and on reducing costs and renegotiating supplier contracts.
Graph courtesy of Bundy Group
Q: What is happening with acquisition and consolidation activity in the dermatology sector?
Bundy: Over the past decade, acquisition and investment activity in dermatology has skyrocketed, fueled primarily by private equity, family offices, and institutional investors. These financial sponsors often start with a platform investment into an existing dermatology group, and the sponsor then uses this as a strategic buyer entity that expands through add-on acquisitions. The demand from these sponsors remains robust, resulting in a wave of outreach to dermatology practice owners nationwide. The impact of private equity in this space has been transformative, growing from a single key investor in 2011 to over 35 by 2024.
Graph courtesy of Bundy Group
Post-pandemic, the investment surge has also extended into aesthetics, including medspas, driving further consolidation.1 While opinions on financial sponsors vary within the dermatology and aesthetics communities, their presence undeniably represents a powerful and lasting force reshaping the market.
Graph courtesy of Bundy Group
Q: What factors are driving the growing interest in the dermatology sector among financial sponsors and strategic buyers?
Bundy: The reasons for the continued acceleration of investments in the dermatology market are numerous, but there are some key contributing factors to note:
Growth Market. Dana Jacoby, President and CEO of Vector Medical Group, highlighted the robust growth opportunities in the dermatology sector, driven by advancements in technology, biologics, and the rising prevalence of skin disorders. She remarked, “The global dermatology market, valued at $21 billion in 2021, is projected to grow at a CAGR of 11%, reaching $49 billion by 2030. Factors such as emerging markets, teledermatology innovations, and personalized treatment approaches are fueling this expansion, offering substantial investment potential.”
Jacoby further emphasized, “The aging population is a key growth driver, with individuals over 60 increasingly seeking treatments for age-related concerns like wrinkles, pigmentation, and skin cancer. As the global population aged 65 and older is expected to double by 2050, demand for both medical and cosmetic dermatology services is poised for significant growth.”
Dermatology & aesthetic sector by the numbers2,3
Infographic courtesy of Bundy Group
Durable Market. Financial sponsors are drawn to industries that exhibit resilience during economic downturns and extraordinary events. The dermatology and aesthetics sector has consistently demonstrated this durability, weathering challenges such as the COVID-19 pandemic and the Great Recession. Its proven ability to recover and maintain strong demand continues to reinforce investor confidence in the sector’s capacity to thrive despite economic pressures.
Recurring Revenue. Buyers highly value businesses with stable, repeatable customer bases and predictable revenue streams. Key factors such as patient retention rates, appointment backlogs, procedure history per patient, and average visit frequency are closely scrutinized. Practices that excel in these metrics stand out as attractive opportunities for potential buyers, showcasing their ability to generate consistent and sustainable revenue.
Q: What are the key takeaways?
Bundy: The dermatology market remains an exciting space with strong demand for its valuable services, bolstered by positive US economic trends and robust consumer spending. Resilience and growth are expected to persist, driving continued interest from financial sponsors and strategic buyers. Additionally, consolidation in the aesthetics sector—viewed as a natural extension of the dermatology market—is anticipated to accelerate further. As a result, practices in dermatology and aesthetics are likely to see increasing valuations as buyers and financial sponsors actively seek opportunities in these thriving industries.
Clint Bundy, MBA, is a Managing Director with Bundy Group. He specializes in advising practice owners in business sales, capital raises, and acquisitions.
Alex Chausovsky, MBA, is the Director of Analytics and Consulting with Bundy Group. He presents to industry associations, at trade shows, and to companies on economic and market trends. He also advises companies on business cycle analysis and talent strategy, including compensation.
References
- Medical Spa Market Size, Share & Trends Analysis Report. Grandview Research. January 2024. Accessed December 23, 2024. https://www.grandviewresearch.com/industry-analysis/medical-spa-market
- PitchBook market data. PitchBook. Accessed December 23, 2024. https://pitchbook.com/
- Dermatologists in the US – Employment statistics 2005-2029 IBIS World. Updated October 3, 2024. Accessed December 23, 2024. https://www.ibisworld.com/industry-statistics/employment/dermatologists-united-states/
Disclosure
Bundy Group is a boutique investment bank that specializes in representing healthcare, dermatology, and aesthetics practices in business sales, capital raises, and acquisitions. Over the past 35 years, Bundy Group has advised and closed on over 250 transactions, which includes numerous dermatology-related transactions. You can learn more at www.bundygroup.com or by contacting Clint Bundy at clint@bundygroup.com.
Bundy Group Securities, LLC, is a registered broker-dealer and member of FINRA and SIPC. This content is for informational purposes only and is not intended as investment advice or a recommendation to buy or sell any security.
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