Josh Swearingen 00:02

Good evening, and welcome to the TUSK Practice Sales, medical aesthetics, M&A market update. My name is Josh Swearingen, and we are thrilled to be with you this evening. Just as a little bit of a note, you’ll see a box on the side where you can enter questions, and we will do our best to leave some time at the end to answer those questions. However, if we don’t get to them, just know that we will be responding to you within the next 24 to 48 hours, and we’ll happily answer any questions you might have, so we will do our best time permitting well. As mentioned, my name is Josh Swearingen, I’m a director here at TUSK Practice Sales. I have about 23 years of history in healthcare services, in varying roles. I’ve operated as the CEO of a mid-range 12 location dental service organization that we ultimately built, took to market and sold off to a private equity backed group about seven or eight years ago. I then had the opportunity to operate on the buy side, where I worked for one of those larger MSOs and purchase practices, similar to many of yours out in the space, enjoyed that very, very much, but realized that at some point I really wanted to be on the good side and represent those practices and those sellers, and had the opportunity to begin working at TUSK Practice Sales a few years ago, and have found a wonderful home here in my spare time, and a side investment I did own and operate a mid-tier medical aesthetics Med Spa. Had the opportunity to help build that with a good friend of mine and partner. Ultimately, we decided to sell that off about six months ago and had a lot of fun. Learned a lot of things about building a med spa from the from startup to sale and have brought a lot of that experience into my work today. So really a pleasure to be here, and I’m really excited to talk to you this evening.

Elizabeth Macready 01:55

Thanks, Josh. Hi everyone, my name is Elizabeth Macready. I’m also a director here at TUSK, I oversee all of our front of house. So, leaning into education and helping healthcare business owners like yourself start to think and understand your practice value and start to plan your exit. My background is I have a little over 15 years of experience in the healthcare space, I’ve had the pleasure of having a lot of different opportunities in healthcare, including working clinically, working in offices, operationally, consulting with many, many different offices across the country, and also leading and managing teams of myself. And so my first experience dealing with cosmetic services was with a company called Invisalign, where I had the opportunity to run a business of $100 million in annual sales and helping, you know practices go through digital transformation of their healthcare businesses during that period, you know, I really got to experience and appreciate the intersect between health care and aesthetics and how looking great really can positively impact somebody, not only for how they feel and how they look, but their day to day lives. I joined up with TUSK and have the amazing opportunity now to help healthcare business owners in the med aesthetic space to plan their exit strategy and maximize the value when they’re at the point where they’re ready to exit their business strategically and educate the market on the trends of private equity in healthcare and help guide that decision making. So let’s take a look at TUSK by the numbers. We are a team that is nimble yet experienced. We have 14 dedicated team members based out of Charlotte, North Carolina. Some of us are in various parts of the country, I personally live in Philadelphia, Josh lives in Columbus, Ohio, and we do have a hub in Charlotte, where most of our team works and lives. Between our 14 team members. We have just a wide range of experiences, including 50 years of investment banking, M&A and private equity experience, 120+ years of healthcare experience, and we’ve had the great pleasure of being able to oversee over a billion dollars in healthcare transactions, which is in our absolute honor, and that has been over 200 transactions. So, although we are a small team, we are nimble, and we do have a vast experience with managing all different types of healthcare transactions. One thing, when I think about our team as nimble as it is, one thing that makes us, I think different and separates us from some others in the space, is what experience our team brings to the table for you. Primarily that includes our breadth of experience. So, our team has you can see some of the names on the screen right now, such as E trade, GE Aviation, I mentioned Invisalign, Henry Schein, a lot of different experiences in the healthcare sector that range beyond just finance, that range just beyond private equity. And you know, we like to feel that we are able to wrap our arms around your business in more ways than just the numbers. We in some way or the other, somebody on our team has had an experience similar to yours. You know, Josh talked about some of his experience owning businesses, and you know, it’s really important, we feel it’s very important in the sale of your business that you have a partner who not only understands the nuts and bolts of the business, but also the sweat equity that goes into building what you build, and that comes from having walked in the shoes. And so, we like to leverage our vast experience that we have across many different facets of healthcare, to just make sure that you know that we can relate to what you do on a day-to-day basis. And we appreciate you know what you’ve built in more ways than just the numbers.

Josh Swearingen 06:34

Well thank you, Elizabeth. I appreciate that. Well, I think, to say the least, I think the biggest development over the last couple of months has been the election that occurred, whether you whether you’re on one side or the other, it makes little difference, I think, for the capital markets and for purposes of this conversation in particular, most of the financial markets were kind of just sitting on the sidelines waiting to see what would happen, and that that fear of the unknown was the largest limiter of mergers and acquisitions activity over the course of the last year. And I think that what we’ve noticed is, as things have settled down, you know, after the election, and it’s a known the outcome is, is known and understood at this point, the capital markets are starting to settle down again, and we’re starting to see cash flow, kind of flow into the deals a little bit more expediently, so, which is great for the markets as a whole. I think one thing that is really interesting to kind of keep an eye on is the interest rate environment and I think that, you know, we’re going to get a little bit granular in how we how we kind of introduce private equity to all of you this evening and give you a really good understanding of how private equity operates. But it’s important to understand that at the very baseline of a deal, there is a percentage of the deal structure that is going to be in cash at close, and there’s a percentage of the deal structure that is going to be in roll over equity, and within that cash at close amount, a portion of that are what are known as captive funds that the private equity group essentially has in their coffers already. But a portion of that is also going to be funded through an external loan, and those loans are heavily dependent upon the varying interest rates. And when interest rates go up on the market as a whole, deals become more expensive for these private equity groups to execute. So, as a result, you end up seeing deal values drop a little bit. It may not be quite as attractive for the sellers at that point, and everything kind of grinds to a halt, and we have noticed that significantly over the last probably six to eight months, especially heading into the election, heading into a higher interest rate environment right before the rate cuts really started to hit, things just ground to a halt and it’s been kind of a wait and see ever since then. So, with the election settled, with the interest rates slowly starting to come down, we do anticipate there being a pretty significant rush into the merger and acquisition markets over the next probably three to four years, at least, and that’s going to really, truly benefit the sellers that are in market over that time period.

Elizabeth Macready 09:25

All right, so thanks for that, Josh. So, we’re going to jump into some key highlights of the medical aesthetics industry. First, we want to start by looking at just the high level by the numbers, the outlook on the med aesthetics space as probably no secret is very, very strong. That’s probably why maybe you’re invested into the medical aesthetics space as a business owner. But you know, we can see kind of the data points behind the growth. So, I just wanted to take a moment to touch on that you can see in the top left box, the total number of US medical spas has grown significantly, even just in the past two years. And 2022 we had, you know, 8,800 or so medical spas. And in 2024 that numbers up to 11,000 almost 11,500 and it’s going to continue to grow. The outlook is very strong, and I’m sure you all have experienced that. I mean, that’s created some dynamics with, you know, competition and more general awareness, hopefully driving more consumers into your doors. But also, that expansion of med spas, as it’s being, you know, accepted by the broader public is, you know, just, just aiding in this fast paced growth with the number of med spas that are out there. So, the average medical spa revenue has also gone up, which is great, obviously, as you know, there’s been a lot of new advancements and if you’re one of the med spas that has been on top of those things and implementing new innovations, weight loss, lasers, you know, that kind of technology into the business, I’m sure you’ve been on the upswing of the growth in revenue. But between 2022 and 2023 it’s, you know, went from 1.3 to 1.4 million. I think in 2024 its projected to be closer to 1.5 million. So, we are seeing this like steady growth on average for our med spa community. We are projecting 9% annual growth and, you know, it’s given a lot of confidence in from an investor lens. So, when we put all these pieces together, we start to see this increased interest in private equity. So, I get the opportunity to talk to a lot of business owners in the med aesthetics community every day, and most of you share with me that you are probably all at one point have been contacted by an interested buyer who could be well capitalized or strategically interested in investing in your business. There’s a couple of things you know that aid in that, and obviously some of the things grow, not only fueling the growth in medical aesthetics, but also fueling the interest from these investors that are out there and aggressively making offers on business that are in a couple of different areas. The first being that, you know, aesthetic treatments are primarily cash basis. We work in other areas of healthcare obviously, where it’s there’s a lot of similarities here that we see in other areas of other different types of healthcare businesses that have gone through similar changes in the market and growth patterns. And what’s really attractive for our medical aesthetics community is that you’re not tied up with insurance. It is sort of like this wellness hybrid between wellness and aesthetics, and we’re starting to see more of that come together. But also, you’re not beholden to insurance companies in the way that other types of medical practices are. So that’s a huge plus, and also something that’s fueling a lot of confidence in the industry. So, consumer spending also on aesthetics, is very strong, as you can see, over the past couple of years, there’s been a lot of economic, you know, headwinds, and the fact that the average growth rate is still projected to maintain, you know, historical growth year over year, and even pick up steam on growth year over year, that is pretty incredible, and obviously something that’s hugely attractive and speaks to the resilience of the market and med aesthetics in particular. We’re going to get into more of the investor lens of that as we move through the rest of the presentation this evening, but just a couple of points there to kind of point to not only the market resilience and medical aesthetics, but also some key outlooks in to how private equity and investors are viewing the future of the space. So, let’s take a minute to kind of break down this term of private equity. So, I’ve already kind of spoken to a little bit of private equity and we’ve, we’ve touched on that a little bit, but you may be thinking to yourself, you know, what is private equity and you know, why are they interested, potentially, or, why have I gotten a phone call, and what’s this all about? Essentially, private equity involves investment funds that are interested in acquiring companies or small practices, individually owned practices, to improve them and sell them at a profit. So, where they make their money is in adding value to a business after they acquire it, acquiring other similar businesses, and then selling them for an arbitrage compared to their initial investment. So private equity really, is truly looking for opportunities, you know, to add value to individually owned businesses, healthcare businesses and otherwise, and looking for, you know, potential partners who want to go on that journey with them. I touched on, you know, some of the why medical aesthetics is important right now, a lot of that has to do with that high growth outlook. And when we have market dynamics that are aiding in continued growth, it does help to make that their investment thesis around why they would maybe want to invest in a medical aesthetics practice, for instance, that much stronger when we have strong tailwinds pushing forward. You know, the macro growth opportunity in space. What’s the strategy that private equity has are they just like the big bad wolf? You know, there’s a lot of stories being tossed around out there, and you hear your success stories, you may have heard some stories that weren’t so successful. Ultimately, their goal is to, like I said, create arbitrage from their initial investment, create growth, opportunity and value, but they’re also looking to create and achieve economies of scale. So, all of you on the call tonight, you will be buying, I’m sure, supplies, cost of goods, you’ll be buying things from some vendors that are out there, and you’ll be subject to a specific price as an individual business owner. What the private equity and managed service organization will ultimately look to achieve with their group is to be able to leverage, you know, when being able to bring you know power in numbers where you may instead of having you know, one business owner who’s subject to one specific price, once you’re grouped up and you have maybe several different business owner, half a dozen, a dozen, 50, 100 you really start to consolidate your buying power to be able to, you know, help manage some of the costs in the business a little bit better. You know, there are some high costs related to medical spas in general, I’m sure you all are aware of that better than anybody else, but ultimately, what they’re trying to do is are find those economies of scale and find those growth opportunities.

Josh Swearingen 17:15

Elizabeth, I want to add a quick point here and I think just because it might be obvious to everyone listening, but I also think it’s a helpful call out. I think it’s important to understand that, you know, you’ve got, you’ve got these manufacturers who are selling products, and we actually see this in other areas of healthcare, where insurance is involved, and you can, you can apply it to that as well, but you have vendors, you have human resources, benefits providers, you have marketing groups, all of these potential or prospective costs for your business that an MSO private equity group can scale around and apply to their business at a much unit price, much lower price per unit than a private practitioner Can. I think Elizabeth hit that point really well. I think what, what we don’t often talk about is the reciprocal impact that has on your business because it’s also important to understand that most of these manufacturers and groups are also publicly traded companies who have a responsibility to their shareholders to maintain profits. So, while you’ve got, while their profits are getting squeezed on the group practice side, they have to make up for that somewhere and, you know, they make up for some of it with growth in the industry as a whole. They make up for some of it with new product lines and things like that that get developed. And then they make up for some of it through price increases at the private practice level. So, some of what you have experienced over the last, you know, couple of years of owning a private practice where you’ve seen prices go up and things like that. Obviously, some of that’s market dependent, and we understand that. But there’s also a piece of that that is simply due to a rebalancing of the of the aesthetics market as a whole, that is taking into account some of the scale that some of these larger buyers have. So, I just want to make that point before you went on.

Elizabeth Macready 19:05

Yeah, that’s a great point, Josh, and I think I it to wrap up this particular subject, there’s a couple of different ways that, when we go back to really the goals of private equity methods, that they go about driving this, this growth in these outcomes it’s really as you’re beginning to get familiar with kind of the structure and the methods of a private equity, quote, unquote, roll up strategy where there’s an acquisition growth component to how they’re going to scale their own businesses and acquire practices to join their group. There’re a couple things that they’re going to do, in order to make that successful. And the first thing is deploying operators at board and practice levels. So, what that means is whereas you know right now you may be an individual practice owner, and there might be other you know, med spas around you that you may know, and maybe you don’t know them personally, if there were an opportunity for the some sharing of resources, because you’re now owned under the same umbrella, that creates some kind of some opportunities there where you can have centralized management that’s able to add things such as HR resources or payroll resources or hiring, you know, and managing some of the team, which should relieve some of the burden of your day to day, so that you can maintain focus on, you know, the outcomes of the business, or whatever it is that you are focused on in the business primarily, or you’re where your interest lies. If you’re someone who you’re doing injecting, that you can focus on that you know more, and focus on those relationships more. And so when we see those things start to come together in the right ways, then we do start to see, you know, this kind of relationship flourish between a business owner who has joined forces, you’ve got some really experienced operators and team members now to support the business side of the practice, or the business side of what you do day to day. So, you can focus more on, you know, just taking care of your people and your business and your patients. So that life cycle of the maturation of a private equity backed managed service organization is in three phases. Essentially, it’s this initial investment, which we’ll get to later, the second bite, or the second sale of that business, so that’s where the arbitrage comes in, where they will sell the asset to another investor, and then a subsequent recapitalization. We’ll get into some of the financial implications of that life cycle later on in the presentation, just kind of frame up, kind of private equity strategy on a macro level, some ways that they go about achieving that, and then ultimately what that life cycle can look like.

Josh Swearingen 22:05

Great, Elizabeth, thank you. Just to I think, I think it’s helpful, as we’ve kind of gone through some of these definitions, if we really kind of get a better understanding of not just where the med spa space is in general, but also where healthcare consolidation has been, you know, over the last 30, 40, 50 years. So I think if you kind of start at the bottom of this graph, and you can see medical consolidation, most medical practices, in large part, are consolidated, roughly 85% of them, and those outliers are more along the lines of concierge practices or specialty businesses or things like that, but around 85% of the primary care market is consolidated underneath either a university or a hospital system, and that started 40 plus years ago, and has been going ever since then and it tips that 85% mark probably 7 to 10 years ago, and it’s really kind of maintained that. And what that does kind of tell us is that, you know that remaining 15% those 15% of the practices that are concierge or specialty or somewhat unique in nature, there really isn’t much of a market for those. And we’ll talk a little bit more that on the next slides, but that’s, that’s kind of the tipping point where you’ve really lost value in your private practice, because the hospital systems are so finely tuned that they can only acquire certain types of assets. So, if you take up, if you look at the next, the next group up, dental consolidation, this has been going on for the last probably 25 years, 30 years, depending on how you count the numbers. But dentistry is around 30 to 35 maybe even 40% consolidated at this point. And many people consider this time right now to be kind of the golden age for dentistry consolidation. It’s a really great point to be a private practice owner, and actually, really anything between 10 and about 40% is a great place to be a private practice owner. And once you get over that, you really do start limiting the number of buyers that there are for your business, if it’s a private practice business. And then we look at medical spa consolidation, we’re really at the front end of this, 3 to 5% it’s an incredibly exciting time if you’re, if you own and operate a business that is large enough and scalable enough that the private equity groups are interested in you, and if you aren’t quite to that level yet, just understand that as you continue to grow, the market will be coming to you. So, there’s a lot of opportunity out there, but this is roughly where we stand today.

Elizabeth Macready 24:40

One thing that I want to point out related to the consolidation and how that med spa space is uniquely different than some of these other sectors that we’ve experienced go through a similar consolidation wave, is that, if you look at the size of the med spa market, which we touched on earlier, there’s about 11,500 are in med spas, and that’s growing all the time, when you compare that to hospital, health care or dental, you know, dental has, you know, 150,000 GPs, that doesn’t count specialists. So, it’s a much larger marketplace, and to get to 30, 35% over even, you know, the last 15-20, years that has gone very fast. And so, as you can imagine, med spa right now we’re at 3 to 5% but if you can kind of imagine how quickly that can move relative to how quickly we’ve seen some of these other markets move on a much larger scale. It’s really interesting to kind of sit back for a minute and kind of take that in. And so, we project like we do think that, you know, one we’ve seen it, private equity gets interested, things can move really quickly. We’ve seen it happen on a much larger scale. And so right now is a really interesting time for the med spa community to get introduced to private equity’s interest.

Josh Swearingen 26:03

For sure, really, good point. So, this slide’s really pretty self-explanatory. Kind of talks through, you know, some of the deal activity that has occurred over the last several years. I think that it bears noting that, you know, if you look at the 2019 deal count, 43 deals that were done, it’s really pretty consistent from 2015 through 2018 and then in 2019 you have this huge spike. And that’s really when the market started taking off. And then the market essentially got crushed by COVID for the next two years. And then you saw a really nice recovery in 2022 and you know this, this graphic is a little bit older, but we have seen subsequent activity growth over the last throughout all of 2023 and into 2024 and we’re anticipating 2025 to dwarf the 2022 numbers. So that is purely representative of the amount of capital that has moved into the market. I think that you know at the front end of a market, you have the early stages that have investment capital that come in and make their investments and start building practices and building platforms, and there are a few of them, and then it doesn’t take long for a lot of the other groups out there to become, to get interested and hear what’s going on and start moving into the space. So, we’re at a point now where there, there are so many private equity groups sitting on the sidelines that are looking for their platform investment, that are trying to find a platform investment, and haven’t been able to, simply because, you know that they need something that’s a little bit larger, they need something that’s multi-site, they need something, you know, that hits certain investment parameters that we’re starting to see, number one, valuations increase, and number two, we’re going to start to see a lot of activity in the mid-range for platforms that is going to benefit a lot of you private practice owners. So, they’ll start reaching down to the larger private practices to make those initial investments, which is only going to accelerate the deal activity over the next, you know, three to five years. As we step back and we can take kind of a broader look at the market as a whole, you know, this is kind of a, I wouldn’t say this is a complete list at all, but this is the top 20 or so MSOs across the country, some of them are well established and have been active for a very, very long time. But by and large, as you look through this list, most of these groups are, you know, single digits to low double digit quantity ranges, and that’s pretty common for the space. So there’s a really nice opportunity for you as practice owners to potentially get into the front end of some of these investments, in some of these groups, and really kind of be an early adopter with a first in investor mentality, which provides tremendous upside to you on the back end of the deal. As we talk about kind of consolidation life cycle, you know, phase one is really platform development. I think we’ve referenced this term a few times, but breaking it down might help a little bit. So, this is really either, you know, larger multi-site groups or very large single location groups that have anywhere from 2 million to $5 million in EBITDA, and even as earnings before interest, taxes, depreciation and amortization, it’s essentially a measurement of net cash flow within the business, and it’s a part of our offering is to provide essentially a market analysis that will peg your EBITDA for you and help us to kind of determine a market valuation for your business. But if you end up being in that kind of larger single location or multi-site group range, that is really what a lot of these private equity groups are looking for right now, and that’s really kind of 0 to 10% consolidated range. As we move down the scale, phase two is where you know you’ve essentially got a really solid group of platforms that are out there. And they’ve made their initial investments, they have a little bit of scale, they’ve started building out infrastructure, and now they’re looking for add on pieces to help build out their group. So, you know, between that 10 and 40% consolidated range. I talked about it, you know, regarding dental a couple of slides ago, they really start pushing out and looking for kind of the mid-range practices, practices that are midsized, 250, $500,000 in EBITDA, upwards of $2 million of EBITDA that they can either be folded into the group platform easily, or they can be single locations on their own within the group. So that’s really kind of that golden age we’re referring to, and that’s what we’re heading into. And to Elizabeth’s point, we’re going to get to that 10% tipping point very quickly within the next year or so. And then once we get past 40% consolidated, you hit a completely different kind of stage of merger and acquisition activity. And this is kind of where the hospital systems at, which is, you know, at some point you get to, you get to a range where, you know, investor expectations are high enough that buying a single location, private practice just doesn’t move the needle for them. And doing 30 individuals of those is a heavy lift on the infrastructure of the business. So instead of doing that, they start looking at other groups to buy. So, once we get past 40% consolidated, you really are in a in a range where groups are buying groups, and the private practices that are being that are available in the market start getting devalued. And then ultimately, if you wait too much longer beyond that, you get to a point where the private practices that are available in the market simply aren’t purchased because they just don’t fit, or they’re just not a desirable asset for the buyers that are out there. As we look at consolidation expectations moving forward, you know, right now, about 80% of the market is private practice single location, and we think that’ll probably shrink to 60% as consolidation continues. I know that there’s a lot of discussion about adding additional locations out in the space right now, and I think one of the things to be perfectly aware of is that you are far better off maximizing the existing location that you are in, then you are taking a location that isn’t maximized and then trying to replicate an inefficient model at another location. The number of locations is not necessarily what’s attractive to the buyers, it’s the amount of EBITDA you have. So certainly, spend the time streamlining and managing as efficiently as possible the existing practice you have before you then potentially look at adding another location. We think that that mid-market, that 2 to 25 range, is going to grow to 25% of the market. I would say this is a pretty conservative estimate. I think it’s going to grow to more. It’s going to be 30 to 35% within the next five years, relatively easily. And then on the elite side, 25 plus locations you saw the graphic a few slides ago there really are only a handful right now. I think we’re going to see that make a reasonably sizable jump over that 25 location mark within the next five years as well.

Elizabeth Macready 33:17

Just going to spend some time talking about the ideal seller profile for a managed service organization and private equity groups. And so, they’re distinctly different in how they’re going to view a seller and their interest in that seller. So, let’s just start with kind of key terms here, the private equity groups are going to be, you know, those that are looking for these larger investments that are more platform in nature that Josh was speaking about in the previous two slides. MSOs, or managed service organizations, are owned by the private equity groups, but they have more infrastructure that’s built. They’re able to support smaller practices in size and nature, and so some of the, you know, key things that they’re looking for and identifying, and their level of interest in partnering with a practice, you know, is relates to kind of what they ultimately provide and value. So, what a let me start with a private equity group first. So, the private equity groups, they’re going equity groups, they’re going to be the ones that are looking for these meteor size, maybe multi-site, you know, dynamic team infrastructure, organizational hierarchies, you know, a little bit more infrastructure that’s built around the business that they’re looking to acquire. This is where they look at kind of like in a first investment, or quote on quote jumping off point where they can have enough cash flow there that they’re comfortable and makes it interesting for them. Is how, the best way that I can probably describe how their what their searching for. So, they’re ideally, the owner who’s going to partner with a private equity group is looking for a 7-to-10-year timeline, little bit longer timeline. Their infrastructure that they have in their business can be scaled, and they can use some of the things, some of the infrastructure that that owner has built, to scale into other locations, so almost like a flagship practice, if you will. There should be a broad mix of services there, a healthy growing geography, and minimal key man risk. And I know this is a big thing that feels counterintuitive, but the less relevant you have to be to your business, the better they’re going to like that, as odd as that sounds. So, if you’re someone who you know, you found a way to delegate, you know, your own personal production and responsibilities to other people, you’re on the right track, and that’s ultimately what they’re looking for. For those that are, you know, super producers and really, really outsize the market in terms of what they’re able to produce in a given time period relative to others, I mean, that’s an awesome characteristic, unfortunately, it does count against you to a degree when it comes to partnering with a private equity group, because their question will always be, what happens if we lose that person? We have to keep that person. And usually, when I talk to sellers, that’s not, ultimately, what the seller wants is not to be absolutely, fundamentally needed to where you can’t retire or move on and do anything else. Most of the sellers that we work with say, hey, I’m on like, a timeline here, I want to be able to do other things, I want to free myself up. And so, minimizing key man risk is really important to that. And then you’re looking at, you know, an EBITDA amount, or that cash free, cash flow amount of about two and a half million dollars and above. So, the again, chunkier, more sizable practices for the private equity groups, for the MSO investors. Again, these are, you know, they’ve already got some infrastructure. Maybe they already have a dozen or more locations, and they’re in that kind of growth and scaling phase, they’re looking for an owner, say, on the average side, about five years in timeline that they after you close or after you sell your business to them. They like, I think, ideally, looking for five-year commitment from the owner to stay on board the broad mix of services, again, similar to the private equity groups and how they’ll look at it, broad mix of providers, minimizing key man risk, you see a theme here. However, an EBITDA amount, they’re willing typically, to be more flexible there. So, we see about $500,000 and above, we’re able to, you know, garner interest, and they’re able to kind of plug in and add value to continue the growth of practices that are, you know, $500,000 and fit that profile. So those are essentially, kind of the two distinct seller profiles for the two different types of buyers.

Josh Swearingen 38:01

Well thanks, Elizabeth, that was fantastic. So, let’s talk a little bit about, you know, what this looks like moving forward into 2025, and as we, as we look at the market as a whole, there are a lot of considerations that you as a prospective seller need to be thinking about heading into market and looking at the opportunities that might present themselves, and I think you had a few different critical factors here. Number one, obviously, you want to maximize the economics in the deal. You want to ensure that you get favorable, favorable deal terms, and that you get credit for any growth that you are putting into place pre-close that may take hold post growth, and that the business that you’ve built is essentially monetized in a manner that is respectful of the amount of time and effort that you’ve put into building it. Obviously, clinical autonomy is a big issue. I don’t think there’s a whole lot of discussion about this as much in the medical spa space, but this always comes into play in dermatology and some of the other aesthetics spaces, you know, I think it’s, it bears noting that, you know, there are a million different private equity groups out there, there are a lot of different strategics out there. All of them have different investment thesis, and all of them managed in a different manner. And I think that, from my perspective, as kind of the intermediary, part of our responsibility is to help you navigate those conversations, because, you know, it’s, it’s great that there are so many buyers out there that can, you know, provide you with a really, really competitive offer. The potential downside is that you’re walking into a world that you more than likely don’t know a lot about. So, you know, when we’re talking about investment banking and private equity groups and things like that. There’s terminology that’s very different. There is investment protocols that are different, and there’s management protocols that are very, very different. And I think that understanding as you’re looking at various deals, you know what oversight is going to look like, what management is going to look like, how they’re going to recruit for your business, how they’re going to staff your business, things like that. Those are all kind of critical parts of the process that you need to be considering and that you ultimately will need help negotiating. You know you want to understand who the ultimate buyer is, you’re going to have many, many conversations with MSOs, or existing MSOs, more than likely that have really wonderful business development people working for them, that love to wine and dine and take you out and take care of you and treat you well. And I think that’s great and there are a lot of incredibly nice people in this space, and there are a lot of really, really good organizations in the space. But you know, we’ve also already had, over the course of the last couple of years, a couple of businesses you know, struggle. And I think understanding who the capital backers or the private equity groups behind these MSOs are, is important, and having someone that can walk through you know what is the experience of this private equity group? Is this their first investment in health care? Is this their first investment in a provider based office? Is or are they, you know, well versed in manufacturing or restaurants or something like that, so having a better understanding of who’s ultimately writing the checks at the end of the day is critical in this market environment, and then ultimately track record. And this goes hand in hand with my last point, you want to be partnering with a group that has done this before and done it successfully. You do not want them learning how to enter the provider-based healthcare business on you. So, getting a better understanding of who those partners are out there and who the who the financiers behind them are, is incredibly important and a critical part of the process.

Elizabeth Macready 41:46

Great thanks, Josh. So, you know, there’s a lot to consider, and obviously Josh has just given you some good points of what are some kind of key things to consider. As you’re maybe getting offers, you’re thinking about selling your business. And so, what we work on, as a broker, right is we work to be that intermediary between yourself and the buyer. We bring our experience, which we’ve touched on, and our knowledge and expertise of doing really exclusively sell side M&A advisory for the past decade to the table for you to help you get the best outcome throughout that process. You know, we get this out this question a lot. Sometimes we have sellers who get unsolicited offers, and it seems great, and, you know, the buyer seems really nice, and they take you out to dinner, and they tell you nice things, and it makes you feel warm and fuzzy inside, and it feels great. But there’s a lot of key reasons why having a neutral third party that has your back ultimately throughout the deal is important for you. I touched on market expertise, valuation accuracy is really important as you’re continuing through the process of your sale, and maybe again, you’ve gotten an unsolicited offer, nothing’s finalized in terms of the purchase price of your business until the wires are sent. And so you’ll have sometimes invested six months or more with a with a potential buyer, and at any point in time, they can change the value of the deal, they can change the terms of the deal, and there’s nothing that’s sacred, if you will, there’s nothing that’s off the table up until the time where that money is wired. So, the going into your sale process with a clear understanding of the value of your business helps, that helps you to be able to defend that throughout the entire process. And that’s something that we work really closely with our clients on, and it happens quite often actually. Negotiation skills you know, I would say first and foremost with this is that most of the business owners I work with, you know, you’ve, you’ve put a lot of sweat equity. I don’t know a single business owner I’ve spoken with ever that hasn’t put in blood, sweat and tears into building their business. And with that, like any human, comes emotion behind that. And so when you’re entering into a negotiation phase, and you know you have heightened emotions, one way or the other, around the sale of the business, even the best of the best, it can be very challenging to separate that from options and that relate to the negotiation of the business. And so having you know us as a neutral third party who’s a little bit separated from the emotional aspect of it, who can help put things into perspective or help guide you in moments where it feels really challenging, is another key thing that we feel is really valuable to our clients throughout the entirety of the process, front to back. And there are many peaks and valleys to an average sale process that it can be emotionally, you know, taxing, draining, and pretty much you know every way, and there’s highs as well, and we’re there with you to negotiate every step. We give you access to buyers. We make sure that you know we are managing your time. We are 100% invested in getting your business sold for the best possible price, with the best possible terms with the timing that you want. And so timing can be tough to manage, but you know you’re handling probably running your business, family, friends, personal life, all types of different things. So allowing us to be able to pace the deal and make sure that it gets done in the timeline that makes sense for you is also really important for the health of the deal ultimately, and how the deal unfolds and what you’re ultimately able to negotiate, but also just from preventing deal fatigue and that burden from carrying on and getting you, you know, getting it finalized in a clean and timely manner. And then confidentiality, I mean, we act very discreetly. I do get that question often is, hey, I had someone reach out to my front desk, and they said that they wanted to buy the practice, and it spooked my team. You know that when you work with a broker like TUSK, we ensure the sale process remains discrete. Everything is held with utmost most confidence. And really, we seek to really make retain or maintain your reputation and your operations. I think that’s twofold. I think that’s in maintaining the confidentiality, because we’re engaging you with buyers that are credible, that aren’t going to go to your competitors and maybe talk about things that they shouldn’t be talking and not saying things to people, and maybe in your local market that could wind up, you know, coming back and negatively impacting your business, you know. So it’s about, you know, having that confidentiality piece of having credible buyers at the table, but also making sure that you know the process of the deal is handled in a way where you know you have a team of professionals behind you, and so you can feel confident that your reputation of the business that you built and your team is first and foremost in our hands. Regulatory guidance is really important, I think, maybe especially in the med aesthetics and med spa space, we help navigate, you know, compliance legal requirements, minimizing risks to you there the devil’s in the details, and there’s much in the fine print of these deals that goes spans way beyond just the headline price, which is where they’re going to want you to focus and helping you navigate the regulatory pieces of, you know, all of the nuts and bolts of how the process of selling your business flows is, you know, one another area where we spend A lot of time and we feel a lot of value. So just, you know, whether it’s TUSK or whether it’s somebody else, you know, we it’s important to have a broker that you trust who can bring these elements to the table for you. And if you have that team, you know, you can assemble that team, you’re much more likely to have the best possible outcome, both short and long term. So, what does our sales process typically, typically look like? We see you through the entire sale process. So that starts with, you know, prepping your business. So, first and foremost, we’re going to perform operational and financial due diligence with you. We’re going to help you understand your valuation. Our team spends probably close to 30 hours with your finances to clean things up, prepare you, talk to you, get to know you, get to know your story, get to know your team, and start to really kind of plan for that before even energy introducing any buyers to the process. So that’s about a six-week process of getting you prepped, getting your business prepped, and then, and then creating marketing materials to finally take to market when that promotion period kicks in. So that’s six weeks that you’ll spend in preparation, four weeks in promotion. So that’s where, you know, Josh spoke to this a little bit previously, where, you know, you’ll take a practice, you know, to market. We might get initially, you know, a handful of interests, maybe call it 20 interested parties, and then we’re able to start to kind of really attract and create that competitive dynamic for the bidding process that we want to create around your deal. So, call it four weeks in marketing, and then three weeks to eight weeks that you have in between the first round of bids that come out from interested parties to the second round of bids, and that’s where things start to get really meaty. You’ll get to interview and meet different people. Josh is really great, and oversees our deals when they’re in market, and works with you one on one, so you have this level of, you know, a team that’s surrounding you, but also one on one contact that you can call, you know, and is right there with you at every step of the way. So all the way through, basically, when you find that, that right fit for you, that buyer that you feel like, really checks all the boxes, and our team is able to strategize with you around how you feel about that and that the offers that they’re putting on the table, there’s a period of, you know, obviously negotiating, but then 10 to 15 weeks of post Letter of Intent diligence. And you know that can be a lot of reporting that’s requested a lot of different things, and that’s where you know having, again, that person with you by your side throughout the entire process. We go in pretty deep with our clients in terms of not only knowing you personally, but knowing your business very intimately and personally by the end of selling the practice as well. And so, all in all, you’re with us, you know, on average 16 to 33 weeks, you know, at the end of that process, it’s, it’s a huge elation phase, and you’re closing the transaction and money is getting wired. And it’s a really great feeling. And all throughout that process, we’re here throughout the way. But as you think about kind of the timeline that it can take to go from, you know, just prepping the business, to finally closing on the business, you can see that I always say it’s a process, not an event. There’s a lot of things that need to take place, and areas where we work with you to make sure that you not only have the best strategy, but you’ve got the best support, and you can just rest assure that you feel that you know we left no stone unturned in being able to find the right buyer for your business.

Josh Swearingen 51:54

That’s great, so let’s kind of wrap this up with what we see as the big picture for the year. We’ve talked through a lot of content this evening, but we want to leave you with a little bit of information. So I think coming out of 2024 and 2023 where we really saw a lot of capital sitting on the sidelines just waiting to see, you know, what was going to happen with the election, what was going to happen with the economy, what was going to happen with interest rates, I think that we’ve now kind of opened the floodgates on what is going to be a really fun next couple of year season. So, I think 2025, you’re going to see a record number of buyers come to the table with capital to spend. I think the buyers that have been sitting on the sidelines will re-engage, and I think it’s going to provide a really good, competitive market for those sellers that are interested in pursuing a partnership in you know, 2025, 2026, and beyond. In general, sooner is better than later, because a lot of these buyers have investment expectations from their capital partners and from their private equity groups that they’ve not been able to attain over the last year or two. So, they’re trying to make up for lost time, and it’s going to cause them to make a lot of purchases, especially, you know, early on in 2025 and throughout 2025 in general, that are going to be higher in value, because everybody is kind of in the same boat right now. So, you’re going to see really, really high valuations, especially the beginning and middle of the year, and then it’ll probably go back to a more normalized market rate towards the end of year, into 2026 but still, but still good and still better than we are were in 2024 the structure of the deals matter as always. I think that you know, you’re starting to see buyers get just because of some of the economic pressures that have been that have happened over the last couple of years, buyers are starting to offer a little bit less cash at close because it’s more expensive. They’re starting to vary the way that they offer. They offer equity, and they’re starting to place more earn outs and things like that into the structures of their deals. So having a better understanding of what the mechanisms are to ultimately earn the total value that they offer you is critically important. And the deals are getting much more complex than they were, say, two or three years ago, all these deals. And I think that if, if, if you have one really good takeaway from Elizabeth’s last couple of slides, this takes time. This is a highly refined process with investment banks and buyers that do this all the time, and if you try to shortchange some of the time and effort invested at the front end, you will ultimately walk away, either in a deal that you that isn’t maximized, or isn’t what you had hoped it would be, or you’ll be disappointed in the partner that you find. So, taking the time to do your research, find an intermediary, someone that can help you through this process is critically important. And then I think, you know, as we step back and we look even broader, there are a lot of global economic pressures. Debt that we feel are going to be coming down the pipeline over the next couple of years, the national debt is going to have to be addressed at some point. Our health care system is not optimally set up for the next several years, so I think that we are in a position right now where we’ve got a good couple of your runway, 2, 3, 4, maybe 5 year runway. But beyond that, we don’t really know what to expect and that that lead that that lack of understanding of what the future is going to cause the market to move even faster. So that’s what we that’s what we think is going to be coming on the upcoming, on the horizon here, over the next, you know, three to four or five years, whatever that looks like. Just so you know, we talked about it briefly earlier, but we do provide a free practice valuation, and if you are interested in that, we’ll, we’ll gather some preliminary financials from you, have a couple of brief conversations with you, talk about your practice, your goals, kind of, what you’re looking for, and then we can essentially give you a market valuation, what we believe the market will pay for your business, and the type of partners that are out there that would be interested in your business. And Elizabeth heads up that part of our process, and she’s great, and she’d be happy to talk to you so you can get a hold of her either at the phone number or at that email address. And we’re really thankful that you kind of tuned in and listened this evening, so thanks again for joining the TUSK Practice Sales webinar. Have a wonderful evening and we will see you next time you.