A growing market for fertility services like in vitro fertilization has private equity investors eager to enter the space, but with few sizeable platform opportunities available, some sponsors are taking a new approach.
These firms are now shifting focus to ancillary assets—companies that support core fertility services.
Demand has been driven by delayed motherhood, LGBTQ+ family planning, increasing fertility issues and growing employer coverage, but many of the largest IVF providers have already been acquired as the market consolidates.
This is reflected in PitchBook data, which shows healthcare services deals in PE declining since their peak in 2021, including a notable drop-off in fertility platform investments.
Instead, most fertility companies are being acquired as add-ons or minority investments, according to PitchBook’s Q2 2024 Healthcare Services Report.
“There are a ton of private equity firms that are looking to create a new platform within the fertility space. Sometimes it’s just difficult to find an asset of scale to use as a starting point,” said Jake Vesely, vice president at Provident Healthcare Partners.
The slowdown in deal activity is partly due to broader healthcare challenges, including high capital costs and valuation gaps.
Additionally, companies operating in the sector, including market leaders like Progyny, which went public in 2019, are grappling with rising competition from new market entrants, striving to keep up with surging demand, consolidating to expand their offerings, and navigating economic and regulatory changes, the company said in its latest quarterly filing.
Furthermore, many prime fertility companies have already been acquired, limiting new platform opportunities.
“In regard to IVF providers, the CDC publishes the number of technology-assisted reproductive cycles performed by each provider and their success rates,” said PitchBook lead healthcare analyst Rebecca Springer.
“Private equity sponsors can assess the largest and highest-quality providers for platform investments, but many of those prime assets have already been acquired, or sellers are expecting high valuations,” she said.
According to Vesely, fertility companies are typically valued between 7x to 9x adjusted EBITDA as an add-on investment and 10x to 12x as a platform.
Smaller fertility clinics, or those with roughly $2 million to $5 million in EBITDA, are typically priced at 7x to 9x EBITDA, said Jessica Lin, principal in the healthcare and life sciences strategy at KPMG. She said larger groups with $10 million or more in EBITDA can see double-digit multiples.
Demand for fertility assets persists
Despite the current scarcity of opportunities, managers remain keen on exploring investments in the sector.
“Private equity continues to look for ways to drive consolidation in the fertility sector,” said Lin.
She explained that it is generally more recession-resistant and that a significant out-of-pocket component for fertility services insulates it from some of the pricing pressures in other areas of health care.
“Given how much employees value fertility benefits, we’ve seen a really significant increase in the percent of US organizations that offer these fertility benefits—from 30% in 2020 to 40% in 2022,” said Lin. “And it’s not just employers. ... Countries with low fertility rates, like Japan and Italy, now subsidize fertility services through their public health insurance.”
This market backdrop has prompted PE to get in where it can and invest in fertility assets that are ancillary to core services like IVF.
A recent example is Amulet Capital Partner‘s acquisition of Genetics & IVF Institute, a company that primarily provides reproductive banking and reproductive technology services, while also offering fertility treatments. The deal is Amulet’s second platform investment in the fertility sector as the firm seeks to develop the company’s team and platform to serve patients in the US and abroad.
“There is the mini-IVF side of fertility, which is another ancillary service that really hasn’t seen any private equity investment yet,” said Vesely. “It’s essentially treating a patient population that has either been unsuccessful with conventional IVF treatments, or may have been declined service, either from their insurance or from other providers due to their medical complexities.”
Looking ahead, PitchBook’s report predicts a moderate valuation reset and a reduction in capital costs, which may lead to a gradual increase in deal activity across healthcare services
Featured image by John Fedele/Getty Images
