As private equity accelerates investment into the growing medical spa sector, navigating complex compliance, quality and structural risks across states is key for sustainable growth
The U.S. medical spa industry is booming, cashing in on a seemingly recession-proof demand for non-invasive aesthetic treatments, from Botox and laser skincare to weight-loss management and body contouring. Between 2010 and 2023, the sector grew from about 1,600 locations to more than 10,000, with annual average revenue per spa increasing more than twofold.
Yet even amid this impressive expansion, the industry remains highly fragmented: 81% of med spas operate as single-location practices and only 3% are owned by private equity firms or PE-backed organizations.
That’s changing—fast—as PE firms are increasingly drawn to med spas’ cash-pay models, organic growth opportunities, and geographically agnostic makeup. Some are investing in large existing platforms (e.g., Freeman Spogli’s majority investment in VIO Med Spa) while others are eyeing rollups of individual locations (e.g., BC Partners-backed Princeton Medspa).
“If you own a successful med spa, you have been contacted by not one, not two, but, like, dozens of private equity firms,” Alex Thiersch, the founder and CEO of the American Med Spa Association, told Bloomberg this February.
Undoubtedly, private equity’s financial and operational resources are well-positioned to scale up the sector. But that doesn’t mean it’s all smooth sailing ahead. Successful growth hinges on multi-state regulatory fluency as there are many risks that could derail an otherwise positive growth strategy.
Key legal and operational challenges: Minimizing med spa investment risk
It’s no surprise that PE firms are interested in med spas. Their all-cash nature means owners can avoid the reimbursement risk and associated regulatory implications so prevalent in the U.S. healthcare industry and reap higher margins. Also, the industry is quickly expanding across the country and is still in the early stages of consolidation, which makes it even more attractive to prospective investors.
With that said, several legal and operational risks will pose obstacles for PE firms looking to scale nationwide:
- Differing corporate practice of medicine (CPOM) and management service organization (MSO) regulations across states. Some states (e.g., California, Oregon, New York, Texas) strictly enforce CPOM laws prohibiting non-physicians from owning or profiting from medical services. As such, these states may require management services organizations (MSO) structures for med spas, wherein the MSO handles the business operations while licensed professionals own and run the clinical entities themselves.
This state of play can create significant structural, compliance, and contractual complexities. Improper financial arrangements between MSOs and providers can run afoul of fee-splitting prohibitions, for instance, whereas other states may limit the types of services the MSO can provide.
- Ensuring quality control and compliance. Regulations around facility licensure and the practitioners’ scope of practice also vary widely by state, as does associated enforcement. Though most states require clinics to have medical supervisors and set minimum education standards for those providing certain procedures, up to 90% of providers may not be properly licensed, the National Med Spa Association told Axios last year.
Given the steep consumer harm and reputational damage that substandard or unregulated treatments can cause, PE firms should be hyper-vigilant about ensuring clinical quality control and regulatory compliance.
- Cybersecurity issues and state law privacy compliance are also an area of focus as developments and enforcement in these areas continue to increase across the industry.
Scaling medical spas: Seizing opportunities for growth
The med spa sector shows few signs of slowing down. Small, regional, multi-practice locations within metropolitan areas will be of particular interest for PE firms looking to build out national platforms. Expanding into wellness and longevity treatments (e.g., gene therapy) presents another huge growth opportunity.
Ideally, PE firms provide med spa clinicians and business owners the financial, operational, and strategic resources they need to expand—without having to manage these operations themselves.
Yet with more large transactions on the horizon, stakeholders should beware of the regulatory and operational risks that may arise as med spas look to scale. Mindful planning with experienced advisors is key.
Amy Cotton Peterson
Amy Cotton Peterson, Partner at Quarles & Brady, is helping med spa leaders navigate complex transactions.
Jon Howard
Jon Howard, Co-Vice Chair of the business law practice at Quarles & Brady, represents health care entities on middle-market transactions.
