Private Equity Investment in Dermatology and Medical Aesthetics

1. Private Equity Investment in Dermatology and Medical Aesthetics April 4, 2016 Bruce S. Maller This material is for information purposes and internal use only.

2. What is private equity? Vehicle for investing primarily in private companies. Investments often involve debt plus equity in order to amplify returns.

3. What are private equity firms? Firms that raise funds in order to invest in various types of companies. Firms will have different investment strategies and often focus on one specific industry such as health care.

4. How do PE firms make money (for themselves and investors)? Management fees and a percentage performance fee tied based on committed capital and growth attainment for the investors in the fund.

5. Who normally invests in private equity? Pension funds, high net-worth investors, endowments, and institutional investors.

6. Typical Investment Structure • Investor/Limited Partners • Pension Funds • High Net-Worth Investors • Foundations Capital Fees Private Equity Firm General Partner Fund One • Deal #6 • Deal #5 • Deal #4 • Deal #1 • Deal #2 • Deal #3

7. What is the typical life cycle of a private equity investment? A typical private equity fund has a lifespan of around 10 years. Generally, the fund will invest its capital within 3 - 5 years and then has another 5 years or so to liquidate or sell its holdings.

8. Why the investor interest in Dermatology and Aesthetic Medicine?

9. Business Rationale for the Sector Disparate specialties seen as ripe for consolidation Ability to facilitate practice succession Physician supply/demand imbalance Increasing complexity of the business Availability of multiple profit streams “Cash pay” opportunities

10. Why are physicians interested? Ability to monetize equity Assist with practice management Leverage resources to achieve greater scale Facilitate succession planning Provide source of capital for growth

11. Goals for a Successful Partnership Facilitate physician succession Maintain competitive provider compensation Develop business / governance model to scale organization Align physician/investor incentives to grow EBITDA

12. Example of Acquisition Criteria • Size / Structure Considerations • Range of $1 to $5M of EBITDA • Invest a finite amount of equity over the life of the deal • Practice Considerations • Dense regional presence (ideally leading group in geography) • Diversified group of physicians (not dependent on 1-2 key physicians for majority of revenue) • Lab, spa, and/or surgery center ownership • Physician alignment/ownership

13. Example of Basic Model • Investment Fund Target Practice Professional Entity Management Company

14. Example of Structure Physician Entity Management Company • 100% physician owned • Employs all providers • Maintains regulatory / insurance licenses • Pays physician compensation • Provides all MSO services • Employs management team • Owns physical assets of the practices • May own surgery center and other ancillary services • Potential vehicle to acquire assets of other practices

15. Legal Considerations Corporate Practice of Medicine Stark / Anti-Kickback State-specific Regulations • 1 • 2 • 3 Need to engage experienced legal and healthcare advisors

16. Questions