Unlocking Profit Potential: Why Invest in a Cosmetic Dermatology Clinic

Why Buy A Cosmetic Dermatology Clinic?

Sounds boring, doesn’t it? The dermatology market size topped nearly $9bn in revenues last year. The industry grew at a 3.8% CAGR. NOT attractive at all.

But…

Today, we cover:

• Understanding Dermatology

• Growth Drivers of the cosmetic industry

• What Makes It an Attractive Purchase?
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Understanding Dermatology

A clinic usually has two offerings: generalists and specialists.

Generalists cure “skin problems”. Specialists offer cosmetic treatments.

Some do both.

Here’s what’s interesting: The cosmetics services segment is expected to grow at a CAGR of 10.2% by 2029.

You might think that cosmetic procedures are a lot more expensive than the “general” ones.

That’s not true.

Dermatologists have pricing power due to a lower supply of staff and high demand. So they’re priced about the same.

To give you an idea of a few emerging treatments:

1. Buccal Fat Removal (Removes natural fat between jaws and the cheekbones)

2. Skin Minimalism (Hand-in-Hand with combination therapy – use treatments that include the bare minimum effort with maximum effect)

3. Skincare and Makeup Hybrids (Improve quality of skin even while wearing makeup – eg. SPF in makeup)

4. Microdermabrasion (Reduces wrinkles and age spots – safer alternative to chemical peels)

Choice is up to the clinics:

Be a generalist. Get mixed traffic that you can convert from one segment to another.

Or..

Be a specialist. Get low traffic and high-ticket sales.
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Growth Drivers of the Cosmetics Industry

The industry is not for women. It’s for men AND women, especially cosmetics.

Men are among a group of “fence-sitters” who are unsure about using aesthetic injectables.

Making aesthetics accessible and affordable might convert fence-sitters to be monetized as well.

What are the key drivers of Dermatology Clinics?

• Demographics: Patients older than 60 account for 40% of the industry’s revenues.

• Labour Shortage: It takes 12 years for an individual to become a competent dermatologist.

• Shifting Attitudes Towards Aesthetics: Social media is driving awareness and acceptance, especially for newer patient segments.

• Telemedicine: Platforms like FirstDerm, and Direct Dermatology find you a dermatologist on demand; this saves time and increases utilization.

• Dermatology Management Groups: Allowing dermatologists to focus on quality services, while management groups are more consumer-centric.
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What Makes It An Attractive Purchase?

Dermatology clinics have many issues that doctors may not have the focus and time to solve.

This includes:

1. Low utilization

2. High wait times

3. Split between specialized and generalized services

4. Change fee model

What can PE firms do?

Focus on demanded high-margin cosmetics services along with core generalists
Introduce virtual appointments for minor generalist concerns/follow-ups (These are shorter appointments, but can be charged the same fee while increasing utilization)

Virtual appointments can have a higher fee but with a guarantee of an appointment within a week to overcome higher wait times

Implement a CRM-like system for better appointment and time management
CRM system can be used to identify low-footfall timings to allow walk-ins during that time
Charge higher consultation fees upfront with minimal follow-up fees
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How does revenue sharing work with dermatologists after purchase?

They take a % of the topline.

Or, continue to own equity in the shop.

Based on North American comps, it looks like clinics can be bought 8-12x EBITDA and these clinics usually run 10-15% EBITDA without improvements mentioned above.

Who’s buying in? See you next week.

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