A buy and build in the UK med spa industry

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Welcome to another edition of BUY x BUILD, where I write about buying and building cash flow businesses.

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Yannis Slibi is pursuing a buy and build strategy in the UK med spa industry. Over the last two years, he has acquired two med spa businesses (Melior Clinics and Simply Clinics) with 10 locations in London. He plans to grow the business to $20m+ in Revenue / $5m+ in EBITDA over the next five years, using a combination of acquisitions and organic growth.

It was a fascinating conversation that covered:

• Yannis’ proprietary sourcing strategy

• How Yannis structured his deals to retain the sellers as operators

• Key challenges post-acquisition

• Why Yannis believes it’s important for searchers to go deep on one industry vs. exploring several at the same time

• And more

What’s your background?

I started my career in management consulting in 2016 at McKinsey, working out of the Athens office. After two years at McKinsey, I pursued my MBA at Harvard. Since McKinsey sponsored my MBA, I returned to the company after graduation, this time working out of the London office for another two years. In February 2022, I decided to begin my acquisition journey.

Why did you decide to acquire a business?

I always knew I wanted to be my own boss and build something of value. At Harvard, I got a lot of exposure to the ETA space and decided that acquiring a business would be a great way to make that happen. My background in consulting gave me a solid foundation in business and market analysis, which I felt would be an advantage in terms of identifying a strong market and business to acquire.

What did your search process look like and how did you land on the med spa industry?

I started searching in February 2022, acquired my fist company (Simply Clinics) in September of that year and the second one (Melior Clinics) in July 2023.

I spent weeks looking at different industries (waste management, nurseries, mental health facilities, etc.) and comparing all of them. Someone I knew at a PE fund told me about medical spas and how attractive they were, so I decided to look into them. The more I learned, the more interested I became. The industry was growing fast, had high margins, and there was a lot of PE activity, which I thought was a big plus point if I could put together a few smaller targets and get to some scale.

I decided that the med spa market is where I wanted to focus and decided to do a proprietary search. I believed that this would help me find better quality businesses and owners who weren’t necessarily seeking retirement. In my case, I wanted to retain the owners because med spas need to be run by licensed medical professionals.

From there, I started mapping out all the players in my region. I went through the Companies House database in the UK and used G Maps Extractor to map out all the med spas in London. I made a list of all the active clinics at the time and put together a cold outreach campaign, sending about 100 personalized emails each week. I would usually see 15-20 responses and get 3-4 conversations with owners. It took me about a month or so from there to meet the owner of Simply Clinics.

Why did you choose these two businesses?

Both businesses had several things in common that I liked:

• Great reputation in the market

• Multiple locations (both had 4 each; Simply now has 6 total) in prime areas, with significant opportunity to add new locations

• Talented owners who were also business savvy

• EBITDA was higher than I initially targeted ($150k+)

• Comprehensive and attractive service mix, including several higher margin services like injectables which also provide a recurring source of revenue

How did you go about structuring the deals?

I have a HoldCo with several OpCos. In each case, I did a stock deal, acquiring a 75% stake in the business and leaving the remainder with the owners. This way, they got some liquidity and also had an incentive to continue running and growing the business.

The negotiation process was lengthy, as these were not willing sellers necessarily. I had to convince them on the future vision and why to partner with me (help them open more clinics and centralize non-core functions). Agreeing on valuation took some time, as the financials were messy and I had to do a lot of work to reconstruct the P&L and come up with the appropriate adjustments. The first deal took seven months to close from initial contact for these reasons.

Also, with the first deal, I wanted to diligence everything. The second time around, I only focused on the needle movers – things like sales mix, sales concentration among key practitioners, retention/repeat rate, and key contracts. With each acquisition, the diligence can be more streamlined.

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How is your deal structured with investors?

My economics are more akin to what a traditional searcher or independent sponsor might expect. There are some differences from traditional search as well. In search, the searcher typically raises capital to acquire a single business and then plans to run it as the CEO. In my case, I raised a larger capital commitment upfront ($12-18m) to be able to carry out a few acquisitions in quick sequence. In terms of equity, I got 10% upfront, another 10% vesting over five years, and another 20% based on hitting an IRR goal of 20-40% for investors.

How do you plan to grow from here?

I plan to acquire more med spas, but maybe not as aggressively as I initially thought (might be 1-2 slightly larger businesses than 5-6 smaller ones). There is also a lot of organic growth opportunity in these businesses. We’ve already opened two new locations with Simply Clinics and plan to open more in the future. London is a very dense area so I could see us expanding to 25 locations here if we wanted, and ultimately a lot more across the UK.

In terms of the acquired companies, my plan is to run the brands separately for obvious reasons, but centralize finance, marketing, recruiting, training, and procurement. The owners can then focus on running the physical locations and delivering great customer experience.

What are some current challenges you are facing in the business?

I thought coming into this process that there will be a bunch of small things I can improve in these businesses, but eventually realized that quick wins are not easy to come by. It has also been a challenge to work with people of different profiles. Another thing that was a complete surprise was that the staff saw change in ownership as an opportunity to ask for raises. I had to give in with several people as I didn’t want to lose them.

On the financing side, I lined up enough capital initially to carry out a few acquisitions. Raising debt from banks has been a challenge as most banks will want to cross-collateralize the assets in each OpCo, and for that I need permission from all owners who own 25% or more of the equity. I think I can eventually convince them of this but it will take some time. In the meantime, we might need to raise more equity for expansion.

Is there any advice you want to share with other searchers?

The biggest takeaway from my process is that I chose to focus on acquiring in one industry. I meet a lot of searchers who have an agnostic focus and I think this hurts them sometimes. Focusing on one market allowed me to go deep on that industry and gave me the bandwidth to be able to do cold outreach.

Also, there is a lot of focus in the US on acquiring a business with a SBA loan. This obviously works but it’s not the only option. We don’t have a version of that in the UK so we have to be more creative. In my case, I played more of a sponsor role than a searcher. In the latter case, it is more common for searchers to acquire the business and then become it’s new CEO. I’m not the CEO of the med spas I’ve acquired, but rather the one running the HoldCo and providing strategic and financing support from the top.

I also raised capital commitments that exceeded the value of the first deal since I knew I was going to execute an inorganic growth strategy. This is not as common in a true searcher process. Ultimately, I own less than a self-funded searcher might, but the way I look at it is owning a smaller portion of what could become a larger pie with all the acquisitions.

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