Kevin Cumbus

Good evening and welcome. Thank you so much for joining us tonight. It has been a wild ride in 2025 from the M&A markets. If you’ve been keeping track with the Wall Street Journal, PitchBook, you’ve seen what we’ve seen. There have been some very massive headwinds with respect to getting large transactions closed. When large transactions don’t close, there’s a lack of liquidity in the market, and eventually that can trickle down. I’m here today, joined with Josh Swearingen, and we’re going to unpack all of this for you, with respect to the med spa industry, what we’ve seen and where we’re going, Josh, it’s so good to have you here. Thanks for joining me.

Josh Swearingen 

Kevin, it’s always a pleasure. Looking forward to this evening. We’ve had a lot of fun experiences over the course of the year, and happy to unpack this with some prospective clients.

Kevin Cumbus 

Oh, awesome. So before we get started, here, quick introductions. I’m Kevin Cumbus, President and Founder of TUSK. My career is 10 years of finance and investment banking, followed by now almost 18 years on the healthcare side of investing and building operating businesses. And I’m joined today with Josh Swearingen, Josh, could you tell them a little bit about yourself as well?

Josh Swearingen 

Sure, absolutely. I’ve been in the healthcare space for going on 25 years. Had a lot of fun working in various verticals, various roles and responsibilities, and just love the work that we do here at TUSK, representing clients out in the marketplace.

Kevin Cumbus 

The one thing Josh did not share is that he has spent the entire year crisscrossing this nation, speaking on stage at numerous med spa conferences throughout the year. He really makes it his job to understand the way the buyers are thinking, how investors are thinking about these opportunities. So frankly, he can share that with you. This was a year where we saw a lot of buyers, frankly, go pencils down, and we saw a lot of advisors respond to that and go listen. If the buy side is a little softer than we’re accustomed to, we’re going to save our pennies and not get out on the road. Here at TUSK, we actually doubled down on the market, meaning we went to more conferences, spoke at more conferences, and, frankly, did more deals than we’ve done in the history of the firm. And it’s just a true testament to our commitment to this space. So, Josh, just want to take a minute to thank you for all your tireless, tireless efforts over 2025.

Josh Swearingen 

I appreciate it. It’s been a lot of fun. And you know, I think anytime you have an industry that’s in flux as the med spa space is right now, it’s a really good opportunity to get to know the buyers, really, really well, get a better idea of what they’re looking for, and a better understanding of kind of where the space as a whole is going. So, you know, I think that we’re always learning within our organization. And it was, it was a great opportunity to do that. So, I appreciate that.

Kevin Cumbus 

It’s awesome. Well, I mean, you rubbed up against it already, but this is one of the more rapidly growing industries in healthcare. We have seen this this industry, grow about 20% per year for the last five years, compounded annually. So, it’s my suspicion there’s some people on this call, on this webinar tonight, who don’t know who we are. So, I just wanted to do a brief minute and introduce our team. If you own a business, you know the team is the lifeblood of your organization, and I have to tell you, I am so grateful to get to work with this unbelievable collection of folks we bring to the table a long history of financial analysis, investment banking, private equity and operators inside of healthcare. Josh is one of these unique animals, who’s actually been on the buy side before and knows all the tips and tricks that these MSOs that are backed by private equity companies are looking to accomplish when they want to buy your business. Josh, you speak a little bit about that experience, so our buyers have a deeper understanding and appreciation of what that really is like.

Josh Swearingen 

Yeah, it actually started even a little bit before that. I kind of got my chops in the healthcare space, actually helping to run a couple of large-scale MSOs, and then ultimately taking one of them to market and selling it off into the private equity space. And unfortunately, when you run an organization like that, and you sell into the private equity space, often you sell yourself out of a role. And I knew that based on where the market was, understanding both the buy side and the sell side of the M&A environment was critical for really the future of my career and where the space was going. So I had a really cool opportunity to work for a national it was in the dental space, so a national DSO, and was able to acquire businesses, you know, private practices like, like many of you who are listening today, all over the country and, you know, I felt like we ran a very good organization. We definitively tried to tip the scales in our favor and do everything that we could to, you know, pay as little as we possibly could for a business so that when we ultimately sold several years down the road, we could make up that arbitrage or all that potential profit in between. And I think that that’s really played well moving into this role with TUSK representing sellers. And quite frankly, it’s so much more rewarding working on the sell-side, kind of fighting for small business owners like yourselves.

Kevin Cumbus 

This is why it’s so important to have somebody like Josh on your team, because he really knows how these deals are constructed and how to bring more value over to our clients for every deal that we do. So just simply, TUSK is celebrating our 10th year this year, it’s been a great journey. We have 15 of the most incredible people that I get to work with each and every day, closed over $1,300,000,000 of transactions over our career, and collectively have closed over 200 healthcare transactions. I don’t think that there’s another group out there with the depth and breadth in the advisor world that we collectively have. Oh, and by the way, we have a good time. The final thing I’ll add is when someone engages us to sell their life’s work, it really is a privilege that we look as an as an honor to work with and for them, and really honor that in their business each and every day when we get to work with you. So, for those of you we have worked with in the past, thank you. And for those of you who are considering it, give us a call, and we’re happy to walk you through how we do what we do.

Josh Swearingen 

And just, just to put a little cap on that point, I think one of the things that I think is really, really interesting about the private equity space is, you know, we talk about all of the various transactions that we’ve covered. We also cover multiple verticals, you know, med spa and inclusive of a few others. And the great thing about this space is that the buyer pool is actually generally represented by the same group of PE investors across almost all verticals. So, it’s very likely that the buyers that we work with on a daily basis in the med spa space may also have, you know, a behavioral health investment. They may also have a dental investment, and those relationships carry over very, very well, and we’ve found that it’s really kind of given us a leg up in the medical aesthetic space, really having a firm understanding and relationship with the core group of investors that are actually writing the checks for these businesses and helping to integrate the businesses into their MSOs,

Kevin Cumbus 

Yeah, it’s a great call out because it frankly gives us leverage, which we then, you know, share with our clients through their process. So the couple things are different about us. We only represent the seller, so we never get paid by the buy side. We only get paid by the seller. There are others out there who have a conflict when they work with a client and get paid by both the buyer and the seller. And we have a team here that is dedicated to not one person, typically it’s two or three who are working with you each and every day on your transaction to ensure that we have redundancy and pace. Because if you’ve heard the old adage, time kills all deals, well that that that waste of time is not going to come from our side. We can guarantee you that. On the go to market strategy, we have a time tested tenured process where we are certain that we’re going to identify all the investors, buyers, MSOs and private equity groups that are interested in your business, so we can pit them against one another, and really create a competitive bidding environment where we drive up the value to allow you the luxury of a hard decision right, where you might want to choose a valuation that’s maybe a little lower than the top enterprise value but offers you more long term cash flows through something like joint venture equity. Again, we’re your guide, we’re your sherpa here, and our job is to just bring every offer we can so you know that you are exiting without regret. Additionally, a lot of the brokers out there disappear post LOI. That’s when it’s time to actually roll up your sleeves, because that’s the point in time where the buyer is going to bring in a CPA firm to confirm the adjusted EBITDA that we took to market through a process called a quality of earnings. And that’s as much as they say. It’s just math. It is truly a negotiation. And there’s no one I’d rather have in my corner than the TUSK team in going through something like that.

And finally, I guess it’s best summed up by saying, you know, we do it the hard way, it takes a ton of time, hundreds of hours, to get these deals done, because it is the right way. And it’s the work that we would want done for our friends or our family or ourselves, if we were in the fortunate position that you are.

Just a quick overview of the process, I’m not going to spend much time on this, other than to let you know there are multiple people involved in this throughout, throughout the time here in market, and it is the system that we’ve used for 10 years now and has resulted in unbelievable outcomes for our clients.

Alright, let’s zoom out a little bit. So, before we can dig into what’s going on in the med spa world, I think it’s important, that we take a step back and really dig into why private equity is interested in health care in general, right? So why health care? Well, it’s a relatively, med spa particularly, is a very fragmented market. We’ve talked about the number of locations out there, and the growth of the number of locations throughout the United States, that there’s no end in sight on that world, and there’s a lot of fragmentation. In Charlotte, where we’re from, I mean, every time I walk out of my house, I feel like there’s a new med spa opening their doors. So, there’s an opportunity there to really build something bigger by collecting these businesses and layering in some synergies and some cost savings. They like to also find a relatively high barrier to entry. Med spas has a little ways to go here. Josh, you can speak to the regulatory environment a lot more specifically than I can. But this is really a state-by-state issue, and I would also say this is ever evolving, isn’t it, Josh?

Josh Swearingen 

Yeah, it is. I think, I think one of the more interesting developments over the last year, and this often happens at the front end of a consolidation of a space, is that you, you know when you kind of start out that consolidation, it really is, in many cases, the wild-wild west. And I think med spa is no different. Every state has a different regulatory environment. Every state has different provider rules and regulations that have to be followed. Who can own a med spa, who can’t own a med spa, who can do which procedures, and vice versa and all of that. And I think that that is largely where we are today. The thing that really starts tipping that boat, and in many cases, in a good way, is when you start getting private equity groups that have some mass and they’re now investing in assets across state lines. They’re looking for some degree of similarity between the regulatory environment from state to state. So, they start pushing on and lobbying those states to bring consistency, or at least a base level of consistency. So, I think that as we’ve seen this year, a little bit, I think we’re going to see even more out over the next two to three years, we’re going to see some significant regulatory changes that are going to raise the bar, a little bit of who can actually be involved in this market and space, and who, who can own the businesses and provide certain types of care. So, I think that’s certainly coming down the pipeline in short order.

Kevin Cumbus 

For a couple years, I worked for a large dental service organization that was backed by private equity, and they made it their mission one year, to really make sure that they built a moat politically around their around their business, to protect it. I’ll never forget on the income statement, we had $0 the previous year for investments in political action committees, and the next year, it was well over seven figures. So, they certainly want to protect their investment and build higher barriers, as you were saying,

Additionally looking for some high-margin and preferably recession resistant or proof qualities. We’re still pretty early innings here in med spa, but what I’ve seen from my own family is, once you start down the road of med spa, it’s really hard to kind of take the foot off the gas. And that stickiness of the patient, of the patient is really very attractive to the investors out there.

Josh Swearingen 

Yeah, and we’re going to get into this a little bit more later, but I think, I think one of the interesting things that happened this year as a combination of number of, kind of a little bit of a failure, and number two and three, I think we’ve actually had a lot of med spas that have entered the space over the last 18 to 24 months, which is diluted a lot of that market and made the and made the business a little bit more competitive and less recession resistant, I think, over the over the last six months, especially with some of the regulatory changes, or the next 12 months, with just some of the business environment changes, it’s become more and more difficult to operate a business in the space, and we’re starting to see a lot of those businesses either sell or close their doors altogether, and that is changing the environment significantly and allowing a really nice recovery in the space for those practices that have been well built, operated by good operators and business owners and have some semblance of a good business infrastructure.

Kevin Cumbus 

Yeah, well, we’ve been doing this healthcare M&A thing for 10 years now, and if you look back, I’m sure there are a lot of providers that wish they would have partnered with an MSO before covid, right? So, these large structures and the investment behind them can get can give you some shelter from the storm and really ensure the likelihood that your business and your team is going to be around for years to come.

So, what are they going to do? They’re capitalists, first and foremost, and they need to raise money to go ahead and make these investments. The capital comes from family offices, endowments, wealthy individuals, pension funds, and they’re investing inside of this private equity company and entrusting them with their hard-earned dollars to get a return. So how are we going to get a return? First thing we’re going to do is we’re going to scour the market and look for opportunities like the four points above, and once we identify them, we’re going to go ahead and make an investment inside of a large platform. A large platform used to be defined as maybe $4-$5 million of EBITDA, but that has shrunk over time. Now we’re seeing you could be classified as a platform even if you have EBITDA as low as $2 million. Josh, is that still the case you’re seeing in the market?

Josh Swearingen 

Yeah, yeah. I mean, I think that at this point, a lot of the PE groups that have not entered the market yet are really having a hard time finding investable platforms that are $3 million or more. So, they’re, they’re willing to find a good operator or owner, who’s built a nice business with some infrastructure, preferably with, you know, a couple of locations that they feel that they can build around. So yeah, I think, we’re easily seeing them dip into the 2s.

Kevin Cumbus 

Yeah. So, a couple of things I want to shout out there: locations that Josh mentioned. I think that we go to these conferences and we hear from the stage, you know, go ahead and start your next med spa, or buy your next med spa, and I just want to debunk a myth here. The number of locations that you have, frankly, doesn’t drive value, and in many ways, can deteriorate value. Keep in mind, these investors are trained to look for risk, and the more locations you have, the more leases you have, the more land wards you have, the more brands you have, all complicates the business. So, I would say that the most valuable business you can build in healthcare broadly is the highest amount of EBITDA in the fewest number of locations.

All right, so they go ahead and make this initial investment in the platform, and this is the pole position that you want to be in that Josh worked so hard to help his clients get in this place, because they’re going to frankly overpay to get to get that first platform, and then they’re going to try to buy additional tuck in acquisitions at relatively more affordable multiples. So the way the businesses are constituted, there’s an equity investment that comes in, and then there’s debt or leverage, and the only way to really make this work and get a return for the private equity company, and in turn, the investors is to grow through acquisitions. They just simply cannot grow organically, fast enough to meet the investment criteria of the limited partners that provide the money to the private equity groups. Their typical investment strategy is a 60-month run where they want to buy, roll-up additional locations in tuck-ins, potentially do a couple de novos, grow EBITDA and then exit. Ultimately, you’ve heard the adage, “buy low, sell high.” We define that as EBITDA arbitrage and valuation arbitrage. So, they’d like to buy as many locations as they can at maybe 5,6,7, times, and then ultimately sell that business for 12,13,14, times the EBITDA that they built.

Over the course of this roll up, they’re going to centralize some services to reduce expenses, and they’re going to work with, really the payers and try to raise those reimbursement rates if you do have insurance in your business, but also just help you raise your fees and strengthen the position for your business inside the market. Finally, though, iterate this, refine this, dress it up and go to market. It’s worth calling out here. I don’t know of a single private equity backed MSO that would ever do a deal without representation. So, they’re they are always out there making unsolicited offers. My guess is many of you have received an unsolicited offer for your business, but it is very unlikely they would ever take an unsolicited offer because they want to maximize the value of their business as well. So, if you’ve received an unsolicited offer, call us, call Josh, call me, and we’ll help you understand what to do next.

When all this works perfectly, typically, there’s a two to four times cash on cash return for the limited partners who made the investments initially. There’s a little bit of overhang in the market today and broadly invested healthcare businesses. But this is the goal, and this is what we see in a normal, stabilized market.

Let’s look at the macro trends. A lot of us have debt, bearable interest rate debt. We know this story. What we want to call out is the recent decline, rate cut that we’ve seen, although rising rates kind of exposed some issues inside of health care businesses, I don’t think that simply rate cuts are going to get us back to solving the problem. There were some broken businesses that were exposed during this high-interest rate environment, but it. Will certainly help the M&A markets. Josh, when you talk to buyers that have leverage that are backed by private equity, how do they talk about the interest rate environment these days?

Josh Swearingen 

Yeah, I think, I mean, I think, I think it’s really important to understand how, how a deal is structured in most cases, from the buyer side. And I think that you know, if you, if you receive an offer for your practice there, is a portion of the capital that is going to come from, you know, their existing pool of money, their bucket of money, but a large percentage of the deal is going to be financed through some sort of a bank, financing organization so similar to anyone else in the space, as interest rates rise and the cost to borrow that capital increases either one of two things happen, either the valuations in the business have to be reduced commensurate with that, which makes it far less attractive for owners like yourselves to sell the business. Or if they can’t find deals that they can consummate at that lower valuation level, they just kind of sit on the sideline, go pencils down, and work on their own internal businesses. So I think that, as it relates to this, I think that we all really anticipated that there would be some FED Funds easing earlier on in the year than it occurred, and then we had tariff conversations end of Q1, and then a whole lot of insecurity or uneasiness about the general economy over the next couple of months, and that really put a lot of things on hold. What we’ve seen over the last probably three to four, maybe even five, months are a lot of those buyers who had been pencils down for a while start asking questions again. And start calling us, asking about, you know, deals that may be in market. Tell us, what they’re looking for, letting us know that they’re active again, and in some cases, asking if we know people that they can hire to be on their M&A development teams. And I think that that that is a really good sign of where the market is heading. When they start retooling their development teams, that means they’re about to start getting aggressive in the market. So that’s really where the conversations are. The more the FED funds rate eases, the cheaper the cash becomes, and the higher the valuations get.

Kevin Cumbus 

Those hiring and business development individuals inside of these MSOs is the best lead indicator we know of. And being as involved as we are in the space, we certainly have an inside track knowing who’s going to be the next buyer for the next quarter and the next year.

Josh Swearingen 

We regularly have quarterly calls with most of these buyers, just catch up calls, even if there’s nothing really going on or we’re not working on any active deals with the buyers. It’s just a check in to get a feel for where they are, what they’re looking for, the types of businesses that would attract them and really where they are in their equity cycle, so we can have a good idea of how to plan for the future.

Kevin Cumbus 

That’s outstanding. The other piece of the economy that I think we’re all feeling is the consumer price index inflation, right? I went out Tuesday to go shop for tacos for my family, just some ground beef and taco seasoning and taco shells and Josh, I think I spent $70 on taco meat and to pull together a dinner for four. I might have been a bottle of wine in there too, though, but it is pretty unbelievable what the cost of living is today. Now, a lot of the business owners that you work with, and we talk with the private equity investors, they’re a little insulated from this, but the team that’s working inside of the med spa certainly is not. So, we’re seeing that that rising cost of goods result in a need for rising wages, which in turn can result in declining EBITDA margins and force the force you to have to grow your revenue, but call it 20% to 30% to even get a couple of points of additional EBITDA margin on the bottom. The tough thing about this is prices are pretty sticky, and wages are especially sticky, so the way to really offset that is to get smarter and smarter with bringing additional patients in and making sure that you’re maximizing your highest profitable procedures each and every time.

Josh Swearingen 

Yeah, I think that’s one of the broader, we’ll talk about this in a minute with in the headwinds that we face, but one of the broader realizations across the market is that, as we’ve seen these inflationary trends and the consumer price index increase, cost of living has gone up. We have more and more seemingly very loyal employees that are either requesting raises or are looking at other opportunities out there and shopping their value to the business. And that’s caused a lot of headaches for practices across the board, and I would say increase in overhead on the employee front is one of the biggest challenges facing the space today.

Kevin Cumbus 

To lose a seasoned team member for a buck or two an hour, and then have to replace that seasoned team member with someone at a comparable pay rate that doesn’t have the same experience can be super painful, and we hear about it all the time.

Josh Swearingen 

And often it’s not even $1 or $2 an hour. I mean, we’re seeing jumps that are somewhat more significant than even that.

Kevin Cumbus 

Yeah. And each market is so different. So this is something that a pain that has been felt and likely will continue to be felt. Yeah, we get asked, What’s the offset? How do I solve it? And I honestly think it’s culture and education and making sure that you are connected to your team, you are in constant communication with your team, and you are building a business and a culture that they want to be a part of, and they’re proud to be a part of, because at the end of the day, if you if you can go ahead and forge your groceries and your rent, where you work is where you spend most of your time, and if you’re happy to be there, it’s a lot less likely you’ll be jumping ship for 50 cents to $2 an hour.

Josh Swearingen 

I absolutely agree with you, just want to tag on something on the end of that. Completely agree with what you’re saying, those are the internal things that a business owner can work on to help maintain their team. And we’ve seen in teams that have a lot of longevity, a lot of those things present, and it’s and it’s apparent in the job satisfaction that is shown throughout the organization. I think that the one other thing to be to be considered of, and I think this is a positive for, you know, the next 12 to 18 months, is that we have seen a rash of, quite frankly, as unfortunate as it is to speak of, med spas that have opened over the last 12 to 18 months that are now closing. So, you’re going to have a large influx of providers that are available, and you’re going to have a large influx of patients who were seeing those providers into, you know, a lot of different markets across the country. So, I think that that has a way of leveling things out a little bit, and will hopefully allow a lot of the well-structured businesses to retool and bring in additional help.

Kevin Cumbus 

I was looking for the silver lining, Josh, so thanks for calling that out. That’s actually a really astute comment.

Josh Swearingen 

Always an optimist.

Kevin Cumbus 

I think we have to be in this I have no choice. All right, I’m going to hand it off to you to you to dig a little deeper.

Josh Swearingen 

All right. Well, again, I really appreciate everybody joining us. I mean, I think we’ve covered, actually, a lot of these things throughout the last, you know, 10 or 15 minutes. But I think that, you know, as we dial things back a little bit, it’s, it’s evident that the med spa market is continuing to grow. And if you look at these, the M&A deals that have occurred over the last, you know, 5,6,7, years, we’ve seen almost, really, an astronomical increase in the last three or four. I think that as we look at trends across the country, despite, you know, some of the headwinds that we hit in late 2024 and through, you know, really last quarter, with some of those practice closures, there are a lot of groups that are really solid, that are still fully in acquisition mode out there. And on a daily basis, we now have new buyers that are coming to the market, and I think that that’s what we’re seeing, that really is the correlation between where interest rates and the economy is, and the med spa space now, when we start to see additional PE groups that are looking at throwing capital into the space, that’s a really good sign that they’re anticipating a really nice recovery in the market and are getting tooled up to aggressively pursue that market.

Kevin Cumbus 

Yeah, think about if you’re building one of these businesses in 2019, or 2020, the cost of debt was pretty close to zero at that point, right? And you’re going to build a business very differently in that low-interest rate environment compared to building a business in this interest rate environment. And it is possible, and I’ll maybe even argue likely, that businesses being built today in this high interest rate environment, they might not be able to pay as much at closing from the cash perspective, like you spoke about earlier, but the likelihood of them getting to a recapitalization with a great outcome for their investors and partners could be higher.

Josh Swearingen 

Yeah, yeah. I think that’s a really good call out. I think that you know, as we look across the healthcare space in general, you know, we have, there are a lot of groups out there that, you know, the med spa space is relatively young, so we haven’t seen a lot of groups that have gone fully through a five year recapitalization event. But healthcare in general there, there are a lot of large groups that would have liked to have been recapitalizing over the last 3,4,5, years that have really put that on hold because of the interest rate environment, that we’re now hearing are getting ready to go to market. So I think it bodes really, really well for the industry as a whole, healthcare in general, and especially in the med spa space, to see those interest rates easing a little bit actually see a little bit of a flushing out of the market, and a removal of some of those bad assets and really solid buyers coming through, putting together nice deals for the owners out in the space right now.

I think one other really interesting development that we’ve seen over the last year, and it started actually probably two years ago, but we’re starting to see a lot of cross pollination of the buyer space. So where, you know, for the longest time, you had med spa specific buyers, you had dermatology specific buyers, you had plastic surgery specific buyers, and those were the only types of businesses they were looking for. We’re now seeing, and I’m actually working on a deal right now, you know we’re seeing, you know, buyers that were heavily plastic surgery, who are now looking to fill in the area around a plastic surgeon with med spas to help support patient flow and patient referrals into the surgical space. And the same thing with dermatology businesses. So, I think that as you see more of that support mechanism grow in the space, it’s going to create a really nice competitive environment for the med spas that are out there, because those end up being incredibly additive to the businesses that they already have in place, without really cannibalizing much.

Kevin Cumbus 

No, it makes, these are the synergies that we were talking about, right? How can I get to a one plus one equals three type scenario? Well, if the patient’s entering through the med spa, we identify, maybe there’s someone that needs to be seen by mohs surgeon. We just refer him down the hall, as opposed to out the door. And that’s really capturing the value throughout the patient life cycle, and everything related to, say, plastics, dermatology and med spa.

For those businesses that were pencils down, Josh, I would think so I’m a private equity backed MSO that’s been out there buying med spas, had to take a two year break because my interest rates got too high, and my lender said, “Why don’t you work on your business instead of acquiring additional businesses,” How are they going to get sold? What’s the story they’re going to tell? What actions do they have to take to prepare to go to market and build a story that’s investment grade?

Josh Swearingen 

I mean, you there are a lot of different ways to approach answering that question. A lot of it depends upon the actual strategic organization you’re talking about there. There were a lot of organizations that got that were started over the last five to seven years that needed a lot of work operationally, internally, and they poured a lot of capital into the market, and, you know, got into a point where the capital got more expensive, maybe even on their own balance sheets that the interest they were paying was somewhat crippling in how they operated their business, as many, you know, I’m sure, as many owners understand. So I think a lot of them took that time to really put M&A on the sideline, put their business development on the sideline, bring in operations people, and really start building out an infrastructure and scaling the business the way that it should be, so that should be reflective in the numbers over the course of several years. And I think that that’s a part of the story that they have to tell. And then, you know, when you’re looking at going to market and potentially finding the next capital partner that you’re going to find, really, what they’re interested in is, all right, you know, similarly to the private markets, how do we take this business and then add on a bunch of other additional businesses provide you with the capital you need to grow and then again, take advantage of that arbitrage and sell it at a higher number further down the line. So, from the seller’s perspective of those larger organizations, you have to be able to draw a path from where you are today with some level of operational excellence to, “All right, we’ve done a lot working on the business. It’s obviously operating better. We’ve built the infrastructure out. Now, here is our development plan, and this is what we’re planning to do as interest rates ease, as we get a new capital stack, as we go back to market, this is what we’re looking to do.” So, I think that that, you know, at the higher side of the market, that’s what you’re doing. And really it’s not that different than private practices. Because, you know, as we’ve seen some of the growth, some of the same store growth within a lot of the private practices, kind of not tail off, but peak a little bit over the last couple of years. We’ve seen a lot of those businesses and really good business owners who have really dialed into all right, how do we make the patient experience better? How do we make it more efficient? How do we streamline all of our marketing and various operational aspects? How do we add additional procedures, and you’re doing all of that with the essentially the existing patient base that you have, and now that we’re moving into more of a growth phase where, you know, from a consumer price index perspective, there’s more money being spent by consumers, you can start reaching out to additional consumers, and they all kind of funnel into that, and it all feeds out in your end valuation.

Kevin Cumbus 

Wow. So, there’s that organic growth that you speak about, working internally on your business, and then what private equity calls that inorganic growth, which is growth through acquisitions. It feels like we’re about to see a lot of demand for med spa practices, especially from those groups that had been pencils down and now have to prove themselves again before they go to market, because no one wants to invest in a business that can’t identify great opportunities, partner with great providers and then integrate them into their business to enjoy the synergies that we’ve been discussing. Feels like kind of at the tipping point here.

Josh Swearingen 

Yeah, I agree. And, you know, they’re really, a lot of these conversations start based upon, you know, the numbers that we publish, the book that we put together, the marketing pieces that we put together for the sellers and everything. But ultimately, what this really comes down to is fit and the buyers really want to understand is what are the sellers looking for? What are their goals? And if you know, if they are in growth mode, how do they harness that for the betterment of everybody, and then compensate those sellers on the back end for the work that they’re doing for the organization as a whole? And I think part of what I love about my job is being able to structure deals that really take advantage of that and are really unique in the space. And we see a lot of letters of intent and that are written by buyers without advisors present. And we kind of review those with a lot of prospective clients. But being able to really dig in and customize an offer that is unique for the situation that the seller is in is probably the most enjoyable part of my job. It really is a lot of fun, and it’s really interesting. Every deal is very unique.

Kevin Cumbus 

Yeah, it, you know, there’s so much emphasis put on multiple, right? What multiple would you receive in your deal? That is just the tip of the iceberg when it comes to how you receive the dollars. Because it’s really all about structure, about tax planning, about post sale compensation. And like you that’s the piece that I love the most, is looking at the dials you have to twist and the levers you have to pull to construct the perfect structure for your this unique business you’re selling for your unique client who’s going to be the beneficiary of the proceeds.

Josh Swearingen 

Yeah, I actually, I love when I when I’m working through an LOI that’s been sent across and I think, I think really, the multiple is like the Trojan horse of the LOI, and that’s what everybody focuses on, and that’s what everybody out in the space talks about. And I know it’s a source of pride for a lot of people, but until you dig into all the details surrounding what is represented within whatever that multiple is, you have no idea how attainable any of those numbers are, if attainable at all. And I’d say there are a large number of deals where you know, there’s a possibility that you know, two or three turns of that multiple, meaning the difference between a 5x and an 8x are almost impossible goals that the buyer has set that they know you’ll never attain. They just want the multiple to look good. So, it’s, it’s always a fun conversation and always interesting to challenge some of that with the buyers.

Kevin Cumbus 

Yeah, well, it’s something you’re good at. I’m going to flip foot forward here a little bit. Talk about the buyers.

Josh Swearingen 

So, I mean, we’ve, again, we touched on a lot of this today, but there are a lot of groups out there that have actually been out there for, you know, three plus years, and are really likely going to be going to market and recapitalizing at some point in the next couple of years. And that that is, you know, it’s an often misunderstood term, the recapitalization event. It’s essentially, you know, a private equity group recapitalizing our debt and bringing on another capital partner, and in many cases, the private equity group may the existing one, may remain on as either as a minority partner in the deal, they may cash out entirely. But I think for from your perspective, the thing to really be focused on in the work that we do in the background is ensuring that that MSO has a really solid management team in place and infrastructure in place, because when we can see that, ultimately that’s one of the more valuable parts of the business for a potential capital partner, and that means when they make that investment, they’re not going to want to change a lot of things. So, in most cases, nearly all cases, you know, when you go through a recapitalization event, it really is purely to add additional capital to the business. So you can go, you can add additional services, additional streamline, streamlining of offerings for patients and for the team, and capital for mergers and acquisitions. And rarely does it actually change the structure of the underlying business or have much of an impact on you as the provider in the business.

Kevin Cumbus 

When I worked at a large, multi-unit health care business that was backed by private equity, our providers were always nervous about, “Well, what’s going to happen when sell like, is this private equity going to be treating us differently than the one we have today?” This is the devil we know. What’s going to change, what’s going to stay the same, and on the provider level, I mean, we had 120 locations at that business, really nothing changed. Frankly, they might get better pricing on supplies. They might get a little bit more negotiating power with the payers, but on a day-to-day basis, their life really was relatively unchanged, just a new investor on the balance sheet.

Josh Swearingen 

And I think, I think one of the things, and actually, you know, I’ll finish these other two, and then I have a point to make. But you know, number two, upstart MSOs, these would be less tenured, and MSOs, I would say that most of the larger or most of the groups in the med spa space really probably fall into number two, that post covid formation, or just before covid formation, unfortunately for them. So I think that it’s just a young space. They’re really only a small handful of groups that were formed pre covid, that have been around for 7 to 10 years. Most of them kind of fall into this group. And I think the biggest differences are generally just infrastructure and scale. From your perspective, you know, a well-known, established MSO has more of an infrastructure in place, more support mechanisms for you and your team is a little bit more refined, at least. The hope is that they are a little bit more refined in their in their operations. Some of the upstarts are, you know, they’re building as they grow. So, they’re not without their own headaches. Generally, there’s a little bit more upside opportunity in the equity component of the deal, and they may be more aggressive in pursuing from a from a pricing stamp or valuation standpoint, but, but there’s also headaches that come with working with a business that may not be fully formed at this point.

And then you have private equity groups, and we talked again earlier about this. You know that if you’re, if you’re a group out there, and you’re approaching $3 million in EBITDA, and you have a reasonable infrastructure in place, management infrastructure in place, there are private equity groups that are looking for investments of that size right now, and the this is a really exciting option for a lot of really entrepreneurial owners. This is not for an owner who’s looking to cash out and retire in the next three to five years. It’s a much longer commitment, but you really get to be a part of building something special. And they’re you know, when you have these initial meetings with these private equity groups, they’re coming in trying to get a feel for who you are and what your organization is, and they’re meeting with you because they want to build a group of 10 or 15 or 30 of you in a given market or geography, and are going to be are going to be heavily dependent upon you to help lead that organization. So can be a lot of fun. It’s a tremendous opportunity. It’s a lot of work with a tremendous amount of upside.

Kevin Cumbus 

For our clients that have done this, the way I’ve heard it described, is really a leveling up, right? There’s, I got the business to $3, $4, or $5 million of EBITDA, then we brought this investor in, and there was, let’s call it, pretty smart and strategic money that came along with it, with access to people that I didn’t have access to before, around technology, purchasing, marketing, and all of a sudden, these really bright people are very focused on your business, and you’re in the boardroom each and every quarter, learning from them, integrating these ideas into your business. And frankly, it’s just adding rocket fuel to the business that you built, both through organic and inorganic growth. So a lot of fun to do that, if you’re up for the challenge.

Josh Swearingen 

Yeah, that’s a perfect description of it.

Different kinds of equity structure. So, we, you know, there are a lot of different deal structures, and this is one of those things that is constantly evolving out in the space. And we’ve seen, you know, the benefit of having worked in multiple verticals is that we’ve seen just about everything, and invariably, you know, some of the, some of the verticals that have been consolidating for a really, really long time, you know, being dermatology, dentistry, general medicine, things like that. A lot of those deal structures will eventually make their way into subsequent verticals that those private equity groups move into. So, this is kind of a broad overview, but you know, hold co equity is, is really equity in the parent company. That’s it. So it is, if you know, if they’re a location, and they’re buying 10,12,15, locations, you have a small piece of all 10,12, 15 locations as a whole, there’s their equity gets repriced, usually on a quarterly or annual basis, and you have a share value that goes up as they continue growing. And that’s really the easiest way to explain it. And as Kevin mentioned earlier, they’re really looking at, you know, a 2x to 4x on equity returns.

Joint venture is a little bit different. This is actually one of the more rapidly growing types of equity, and this is a situation where you’re actually in a joint partnership with the MSO. So, they may buy 60% of your practice, but leave you retaining 40% of the business in a joint venture with them, which has a lot of really nice benefits to it, one of which is you generally have access to some sort of distributions, whether that’s the full 40% or a percentage, or a percentage of that 40%, it really allows, especially for younger owners, that kind of ownership type of cash flow in the business and really an opportunity to kind of cut a lot of your potential providers into the business as well at a profit level. So, consider that kind of a huge profit showing percentage.

Kevin Cumbus 

The popularity of joint venture is really taken off. Right, I’m able to take some chips off the table, I’m able to earn an income and get distributions, and a term we’re hearing more and more for rapidly growing businesses that do a joint venture deal is income replacement. We have some clients who have done deals like this, and they now make more than they did before, because through that partnership with the MSO and the practice that they built there, the distributions are just, I mean, they’re incredible. So, they’re working less. They take some chips off the table, and through the distributions, they’re actually making more money. So, these are pretty nifty structures.

Josh Swearingen 

I agree, and I think this is an ideal structure for an entrepreneurial practitioner owner who wants to continue growing because, as Kevin said, you’ve de risked tremendously, you’ve taken chips off the table based on the existing business, but really, there’s a lot of risk that’s wrapped up in starting a new practice up, and you’ve now defrayed a tremendous amount of that risk because you have a partner that is all in on helping that thing grow, and will help hire and help build and help and take over a percentage of the capital costs and requirements and responsibilities, and that can really kind of supercharge the growth the organization can have without adding a lot of additional risk to your specific portfolio.

Kevin Cumbus 

Great, great.

Josh Swearingen 

Yep. And then hybrid, is really, pretty simple. It’s kind of a combination of both. And I’d say a larger percentage of the organizations are going towards this, where you have some equity in the larger, broader parent company, you have some equity at the local level, in your group of businesses, in partnership with the buyer, and are able to kind of realize, you know, the best of both worlds.

Yeah, and then, you know, I think it’s, I think one of the things that we’ve noticed, even with the slowdown in the market, we’ve probably had 7 to 10 or more buyers on every deal we’ve taken to market over the last couple of years. And you know, I think that the qualification process for those has become a little bit more difficult, because we’re constantly running up against new buyers that are new to the market, new capital that don’t have healthcare experience, and we’re constantly trying to do the backend work to ensure that whatever they’re putting on paper they can actually replicate when it comes down to the deal documents and funding the deal so that we’re not wasting everybody’s time, which is ultimately what happens in a lot of cases with some of these new these new groups.

Kevin Cumbus 

Yeah, you’ll talk to some groups who put an LOI in front of you, but not even have capital to close the deal, so you got to be careful with who you’re working with on the other side.

Josh Swearingen 

Yeah, absolutely. I had one happened a couple of weeks ago, and it just made me laugh. They put an LOI forward, and I went to ask a couple of questions about the LOI, and then they admitted that the data room access that we had provided them with, they had never utilized. They had not even looked at the model. They hadn’t looked at any of the financials. They hadn’t looked at anything beyond this small, little marketing tear sheet that we had provided them with, and they just sent out a LOI, which the LOI looked great, but you certainly can’t depend on any of it. So, it was just, it was a funny conversation, and it was indicative of what, you know, some of the buyers that are out there that really aren’t well informed and don’t know what they’re doing.

So, you know, I think that one shout out with a lot of these MSOs, and I think that whenever you’re at the front end of a consolidation, and I think that, you know, there are pros and cons to it, and we’re running up on time here, so I’ll be really brief, but the pro is that, you know, being early in a lot of times, you can get a really nice valuation, you can build an organization around your business, you can be kind of that cornerstone in an organization, which is fantastic. The con, and some of the times when you hear bad stories about private equity is that you know, all private equity is out there looking for additional markets to get into there. That’s what they do. They’re looking for investable markets. And the first private equity groups that enter a market aren’t always the groups that have investment tenure in healthcare or have done it before in other verticals, or have any experience in provider based patient care or anything like that. And I think that we’ve you know, invariably, you always have a group or two that come out blazing and start spending capital, and don’t have any of the infrastructure or experience to build it, and they really kind of money the waters and create a bad name, and they will eventually get flushed out and generally fail or get purchased by another better group, but it ends up poisoning the water a little bit, I think that we’re at a point now, and thankfully in. In the med spa space, that there are a lot of really, really good names in the space represented by these large organizations that have done this in a lot of industries, incredibly successfully. And I think that that is the that is the thing to get the most excited about. You know, these groups are there. They’re looking for organizations that can be additive with their culture and their name. They’re not looking to change you. They’re looking for you to help them be a better organization. They’re generally not going to talk to your patients or colleagues. You can kind of go down this whole list of items. I won’t dig into all of them, but they really do a great job being a partner and not dictating anything to you as the former business owner or as a partner in the organization. So really think that we’re at a really good tipping point right now with a lot of good buyers that is going to create a great market for the next couple of years.

Kevin Cumbus 

Yeah. I mean, I look back to covid, like the companies, the private equity, back to companies that survived covid, they were built the right way, right? So, we’ve kind of gone through another bit of pruning out there for the MSO space, and now, if you’ve survived covid, and you’ve survived this most recent higher interest rate environment, my guess is your balance sheet, your leadership team, your infrastructure, your operations, must be top notch to have gotten this far, and it’s a very high likelihood that you’re going to have success for the years to come.

Josh Swearingen 

Yeah, totally agree.

Kevin Cumbus 

All right, we’re getting close to time, Josh, but just tell us briefly, like, if I’m building a med spa, how do I maximize value from a revenue and risk perspective and EBITDA perspective?

Josh Swearingen 

Yeah, I think you know, if you’re in a med spa, I think this, this $2 million number, is probably a little bit high, but looking for around $300,000 in EBITDA is, is a really solid number that for a lot of groups. A lot of them would like something a little bit higher than that, but $300,000 is a really nice number. And that’s, you know, if you don’t know your EBITDA off the top of your head, we are happy, and you’ll see a link at the back end to do an analysis for you and give you an idea of what that looks like. And then, you know, on the back end of that, we can recommend some resources if you’re if you are thinking about possibly selling the business in the next couple of years, that you know, resources that you could utilize to help get there. If you’re not, I think that all buyers are really looking to mitigate risk throughout the course of a transaction. So having multiple providers in the business is critically important. If the entire business is contingent upon you and your ability to inject or run lasers or this, you know, whatever it may be, there’s a lot of provider risk, and what we call key man risk in the business. So the more you can defer that out and spread that around to your other providers, the less risk there is for the prospective buyers, and the better off you’re going to be from a valuation standpoint.

And then, you know, clean compliance, compliance and risk profile. You know, have clear documentation, have proper supervised supervision of all of your providers. You know, it’s mostly a fee for service, cash-based business, but make sure your billing practices are solid. No major payer regulatory issues. Payer issues: not usually in the med spa space. Regulatory issues: definitely in the med spa space, and we regularly run across opportunities where the business is formed wrong, or it’s not even owned properly in the state that it’s owned in, things like that, and those are all red flags for buyers that can slow things down or potentially cause them to walk away. So, I think we’re really committed to working with a lot of the best providers out of the space and providing you with the best representation for your business that exists. And I think that we do a really good job of that.

Kevin Cumbus 

Look, I said at the beginning, it’s a pleasure to work with these great entrepreneurial business owners and represent their businesses in their life’s work. It’s a lot of fun. It’s a lot of hard work, but it certainly is a lot of fun. It’s financial rewarding for them as well.

Yeah, so I think you’ve touched on a lot of this already.

Josh Swearingen 

Yeah, real quickly. You know, regulatory changes we touched on at the front end. You know, everybody’s kind of stepping back to see, see what happens with the GLP-1, changes, provider oversight and state by state variations, that goes without saying inflation, we touched on that. As we see inflation and interest rates drop, we should see the market recover. That includes both growth for your business and additional patients coming through the door and more buyers from on our side of things, coming to the table, looking for businesses like yours, which is good all the way around. Practice closures are actually going to help the market. They’re not going to help individual owners of those practices, and I know that that’s really an unfortunate thing to say, but, but I think it cleans up the market a little bit, and you’re going to see a lot of the cream rise to the top, and a lot of really good businesses that are going to grow as a result of it. And you know, to the provider point additional providers that will become available as a result of that. And then unqualified buyers. You know, we’ve seen a lot of money enter the space. I think that, you know, we’ve got a lot of really solid buyers out there. We’ve got a lot of completely unqualified buyers out there. And sorting through the prospective, I don’t know, 150-200 prospective buyers is a difficult job, and I think that that can slow things down as well.

Kevin Cumbus 

Great summary, love it.

So, in preparation for sale, I think the first thing to do is pick up the phone and call Josh, and then he can kind of help you window address it. You know, is if you’re going to go through a process there, and I would say the best clients that we work with, and the best outcomes we were able to achieve is when someone calls us and engages us and allows us the opportunity to work with them for six months in advance of going to market, to make sure that we’ve identified all the low lying fruit to enhance the EBITDA, to enhance the value, get to know them, understand what they’re looking for in a transaction. So, we can tell the story, and we can tell the story that is an irresistible story for the buyer that we believe is going to be the best fit for them.

Josh Swearingen 

Yeah, and, you know, I won’t go through all these points, but these are all things that we will walk you through in that process, and questions that you know we’re going to bring up to help you answer heading into the process, to ensure that you know we know what you’re looking for, and we can properly represent that to the buyers, and also to really kind of jog your thought process and make sure that you’re ready, and make sure that you know you’re looking for.

Well listen, we really appreciate you taking the time spending a little bit of it this evening or this afternoon on the webinar with us. You know, if you’re if any of this has piqued your interest, or you have additional questions you we’d love to have a conversation with you. We provide a complimentary practice valuation. It’s a really painless process based around a couple of your practice management reports, and we’ll essentially give you an idea, not just of what your existing EBITDA is, but really what we believe the value in the market will be for your practice for you to go to try to sell that business today. So whether that turns into an immediate engagement with us or provides you with enough information to work on things over the next, you know, several months or potentially years, that’s entirely up to you, but we loved to kick the relationship off with this and are happy to provide it for you.

Kevin Cumbus 

Yeah, the only thing I’ll add is you’re going to get one chance to sell your life’s work, and you want to work with somebody who is deep in this space. And it’s clear to me, in talking with Josh this evening, he knows he knows the buyers, he knows the tips and tricks, and frankly, knows how to get a deal done to meet your individual needs. Every deal is a snowflake, and we treat it as such. Every one of our clients is unique. So, we’re here to help. We are here to educate. Feel free to reach out and Josh, thank you again for your time. This has been fantastic.

Josh Swearingen 

Loved it, man. It was a great time.