The Dermatology Industry Landscape: Unpacking Mergers and Acquisitions and Other Economic Movements

Following a turbulent election year and a period of widespread economic uncertainty, many are wondering what 2025 holds for the macroeconomy, health care sector, and the dermatology and aesthetics mergers and acquisitions (M&A) markets. Bundy Group’s Alex Chausovsky, MBA, director of analytics and consulting, explores economic and market trends, while Clint Bundy, MBA, managing director and M&A advisory expert, delves into consolidation trends and the key drivers shaping buyer activity in the dermatology and aesthetic markets.

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Q: With the election and 2024 behind us, what should clinicians know about the economy?

Chausovsky: Physician practice owners and dermatology providers should remain informed about broader economic trends to anticipate their potential impact on business operations. As of October 2024, US economic growth has shown resilience, with real gross domestic product (GDP) increasing by a moderate 2.7% compared with the same period in 2023 (third quarter year over year). Despite earlier forecasts of a potential recession in 2024, the economy exceeded expectations, achieving a “soft landing.”¹

Consumer-related economic indicators further highlight the strength of the economy. Because consumer spending accounts for two-thirds of US economic activity, its robustness—if not outright growth—by the end of 2024 is particularly encouraging. Additionally, while inflation has not declined significantly in recent months, it continues on a downward trajectory, bolstering household purchasing power and contributing to a more favorable economic environment for health care providers.

Q: What strategies should I follow as a dermatology practice owner to build a highly valuable practice while adapting to current economic trends?

Chausovsky: Attracting and retaining good talent (especially dermatologists and physician assistants) will remain difficult in the years to come, especially considering leading indicators largely suggested a cyclical rising trend will take hold in the economy by the end of this year and continue into 2025. While tempering expectations for robust growth next year, dermatology industry business leaders and decision makers should contemplate the potential threat of rising inflation and how that could ultimately lead to rising wages and detrimentally impact practice profits. The focus should be on identifying and removing inefficiencies to increase productivity and throughput to offset the potential impact of wage inflation and other factors driving margin compression, and on reducing costs and renegotiating supplier contracts.

Q: What is happening with acquisition and consolidation activity in the dermatology sector?

Bundy: Over the past decade, acquisition and investment activity in dermatology has skyrocketed, fueled primarily by private equity, family offices, and institutional investors. These financial sponsors often start with a platform investment into an existing dermatology group, and the sponsor then uses this as a strategic buyer entity that expands through add-on acquisitions. The demand from these sponsors remains robust, resulting in a wave of outreach to dermatology practice owners nationwide. The impact of private equity in this space has been transformative, growing from a single key investor in 2011 to more than 35 by 2024.

Post pandemic, the investment surge has also extended into aesthetics, including medical spas, driving further consolidation.² While opinions on financial sponsors vary within the dermatology and aesthetics communities, their presence undeniably represents a powerful and lasting force reshaping the market (Figure).

Q: What factors are driving the growing interest in the dermatology sector among financial sponsors and strategic buyers?

Bundy: The reasons for the continued acceleration of investments in the dermatology market are numerous, but there are some key contributing factors to note:

• Growth Market. Dana Jacoby, president and CEO of Vector Medical Group, highlighted the robust growth opportunities in the dermatology sector, driven by advancements in technology, biologics, and the rising prevalence of skin disorders. She remarked, “The global dermatology market, valued at $21 billion in 2021, is projected to grow at a compound annual growth rate of 11%, reaching $49 billion by 2030. Factors such as emerging markets, teledermatology innovations, and personalized treatment approaches are fueling this expansion, offering substantial investment potential.”

Jacoby further emphasized, “The aging population is a key growth driver, with individuals older than 60 increasingly seeking treatments for age-related concerns such as wrinkles, pigmentation, and skin cancer. As the global population aged 65 and older is expected to double by 2050, demand for both medical and cosmetic dermatology services is poised for significant growth.”

• Durable Market. Financial sponsors are drawn to industries that exhibit resilience during economic downturns and extraordinary events. The dermatology and aesthetics sector has consistently demonstrated this durability, weathering challenges such as the COVID-19 pandemic and the Great Recession. Its proven ability to recover and maintain strong demand continues to reinforce investor confidence in the sector’s capacity to thrive despite economic pressures.
• Recurring Revenue. Buyers highly value businesses with stable, repeatable customer bases and predictable revenue streams. Key factors such as patient retention rates, appointment backlogs, procedure history per patient, and average visit frequency are closely scrutinized. Practices that excel in these metrics stand out as attractive opportunities for potential buyers, showcasing their ability to generate consistent and sustainable revenue.

Q: What are the key takeaways?

Bundy: The dermatology market remains an exciting space with strong demand for its valuable services, bolstered by positive US economic trends and robust consumer spending. Resilience and growth are expected to persist, driving continued interest from financial sponsors and strategic buyers. Additionally, consolidation in the aesthetics sector—viewed as a natural extension of the dermatology market—is anticipated to accelerate further. As a result, practices in dermatology and aesthetics are likely to see increasing valuations as buyers and financial sponsors actively seek opportunities in these thriving industries.

Clint Bundy, MBA, is a managing director with Bundy Group. He specializes in advising practice owners in business sales, capital raises, and acquisitions.

Alex Chausovsky, MBA, is the director of analytics and consulting with Bundy Group. He presents to industry associations, at trade shows, and to companies on economic and market trends. He also advises companies on business cycle analysis and talent strategy, including compensation.

References

1. GDP issue brief. The White House. October 30, 2024. Accessed January 9, 2025. https://www.whitehouse.gov/cea/written-materials/2024/10/30/gdp-issue-brief/
2. Grandview Research. Medical Spa Market Size, Share & Trends Analysis Report by Service (Facial Treatment, Body Shaping & Contouring, Hair Removal, Scar Revision, Tattoo Removal), by Age Group, by Gender, by Service Provider, by Region, and Segment Forecasts, 2024 - 2030
3. Dermatologists in the US - employment statistics 2005-2029. IBIS World. Updated October 3, 2024. Accessed December 23, 2024. https://www.ibisworld.com/industry-statistics/employment/dermatologists-united-states/