Legal Expert Discusses Industry Outlook for 2025

As a partner in the law firm Michelman & Robinson's Commercial & Business Litigation Practice, Madison Dini has a well-informed perspective on the medical industry. Among other trends, Dini expects an uptick in mergers and acquisitions (M&A) activity within medtech and aesthetics in 2025, driven by trends of industry consolidation. She shared the reasons for that and more in an extensive interview with Modern Aesthetics.

WHY DO YOU EXPECT THAT UPTICK IN M&A ACTIVITY?

I'll start with the macro view. The common prediction is that deal demand will begin to increase overall, and part of what I think will impact that in this particular sector with respect to medtech and aesthetics is the fact that there are several companies planning to transact in 2025. Overall, the economic climate right now is pushing toward deal activity because it's been so stagnant and economic factors are cyclical in nature, but especially post-election, we're going to see an uptick.

Let me give you an example. In 2008, we saw a downturn in deal activity. After that time, people studied the “why” behind it. Even though capital sales decreased, consumers were still purchasing treatments and utilizing the devices themselves. They were either relying on equipment they already had or buying used models. Because of the economic climate, there wasn't a lot of money to be borrowed or interest rates were too high to want to make the investment, but the actual demand was out there for the consumer. In response, manufacturers created alternative revenue streams through to build in some economic advantage to downturns, including increasing consumable and warranty sales.

Unfortunately, on the heels of another economic downturn, I have not seen a fix to the financing issues for consumers, so you're back in the lull of providers not spending what they used to spend on the equipment. While the consumable and service revenue streams will help, they won’t cure the overall deficiencies and companies will have to explore other options to meet growth targets.

This will lead to the aesthetics industry looking very differently in the next couple of years. What we also saw after 2008 were a lot of new players hitting the market, and there are generally a lot of players right now, whether private or public. The idea is still that growth is top of mind. Because it's relatively a static market, all of these players in this expanded field are fighting for the same market share. There are two ways to drive growth in that climate. One is to out-execute the competition, which is difficult when each company is battling the same financing and revenue issues. Beating out the competition also requires investing in new products and innovation, (which also requires capital). The second option is acquisition of similarly situated or strategically complementary companies. Given the economic factors mentioned above, I anticipate we will see more companies strategizing around acquisition rather than out-executing their competitors through innovation.

WHAT IS THE ANTICIPATED IMPACT OF THE FEDERAL TRADE COMMISSION’S NON-COMPETE CLAUSE RULE ON DEAL MAKING AND COMPANY STRATEGIES?

Before the FTC’s ban on non-compete clauses, there was a general reliance and comfortability with just relying on individual state laws and actions that you could take at common law to protect the employer and protect the enforcement of non-compete clauses. It was a more predictable landscape. The ban introduced a potential hurdle for reliance on state laws and individual employment agreement terms. Two of the most impacted subsets of individuals are physicians/physician groups and salespeople. Given that those individual make up the aesthetics industry, the ban has a significant impact on the industry as a whole.

The previously mentioned uptick in mergers and acquisitions comes with concern that newly formed entities and/or investors may face significant issues if they do not thoughtfully retain or integrate key commercial employees and revenue drivers. What I've seen out of failures from prior investment activities and mergers are investors that enter the space without an understanding of how important the commercial teams are or the ability to identify key employees. The sales and commercial that are driving the revenue in this industry. What investors need to understand is that the predictability of enforcing non-competes may be over and it will be critical to start creating incentives to keep key commercial figures at these companies.

Typically, one way to address this concern is through key employee insurance or key asset insurance, retention bonuses, and other transition incentives. One of the most important factors is being able to recognize who the key commercial figures are and what it will take to retain them. The aesthetics industry, in particular, is running thin of true industry experts. I've never met another lawyer, for example, who really knows the ins and outs of this unique industry from both a business and legal perspective. It will take consulting with people who know the players and can actually give the banks, legal team, and investors the insight they need.

HOW ABOUT POTENTIAL US FOOD AND DRUG ADMINISTRATION (FDA) ACTIVITY IN AESTHETIC MEDICINE AND THOSE IMPLICATION?

Obviously, the thought generally is that the new administration will potentially lead to a less restrictive regulatory environment. What that means for aesthetics, including products within the biologics space that aren't cleared or approved right now, is that you'll see more of the approvals and clearances at a faster pace in the next few years. Obviously, this opens the market up to a different type of ability to sell, market, advertise combination treatments to generate and diversify revenue opportunities. 

CAN THINGS CHANGE THAT QUICKLY?

What tends to happen is when you anticipate a more favorable regulatory environment and less government oversight, you do tend to see things happening quicker, and especially making a splash faster because there is such a high expectation for it. There will be a move early in the year to go ahead and take advantage of the momentum. There will be a more expansive scope into what gets approved. This is speculative, of course.

THE COMPANIES, THOUGH, ARE BASICALLY READY TO GO AS SOON AS SOMETHING POTENTIALLY DOES HAPPEN?

I think they absolutely would benefit by doing that. If you're not going to take advantage now where there's a window of opportunity, then what are you doing? What are you waiting for?