The fertility services sector demonstrated remarkable resilience over the course of 2020 in the face of a global pandemic that disrupted nearly every aspect of the world as we know it. Coming into 2021, the space remains a white-hot area of interest for buyers and investors that has impressive prospects for future M&A and is poised for continued expansion in the years to come.
What Happened in M&A More Broadly
At the beginning of the pandemic, the record levels of M&A excitement and activity that had been building over the past several years came to a screeching halt as sellers, investors, and buyers tried to make sense of the new normal. With the uncertainty caused by COVID-19, most companies found themselves needing to focus internally, while investors took a bit of a “wait and see” approach before pursuing new investments. However, since Q3’20 and Q4’20, the markets have been approaching normalcy and we have seen M&A activity and investor interest come roaring back with strong momentum into 2021.
Fertility Sector Resilience
Like nearly every other area of specialty healthcare services, the early days of the pandemic caused a meaningful slowdown in the fertility sector as stay-at-home orders, professional organization guidelines, and broader uncertainty kept many patients out of clinics. However, due to the essential and time-sensitive nature of fertility care, coupled with the fact that a patient’s decision to pursue and complete such care tends to be one that is years in the making and is not easily deterred by short-term events, most practices began to see a relatively strong return of local patient flow just a few months into the pandemic. While the trajectories of individual practices have varied by clinic based on factors like geography, patient mix, telemedicine capabilities, and internal COVID-19 protocols, the fertility services sector as a whole seems to be recovering on par or better than most other specialty physician practice segments.
Refocusing on Local Markets
Over the past several years, fertility tourism has become a booming industry in the U.S. as patients from around the world, driven by technological, demographic, and regulatory factors, have increasingly sought high-quality fertility care in U.S. clinics. While this influx of international patients has driven remarkable growth for many practices in the past, the pandemic caused an astounding contraction in fertility tourism, depriving many practices of what was a substantial source of business. In response, some clinics decided to redouble their efforts in local patient markets to make up for lost international revenues, with many launching or expanding digital marketing campaigns targeting their local populations. As we emerge from the pandemic, this strategy could provide a meaningful opportunity for value creation as pre-COVID international business eventually returns to bolster the performance of practices that will now have a stronger local presence than ever before.
Investor Interest Holds Strong
Throughout 2020, investors continued to demonstrate notable interest in fertility services given the strong long-term fundamentals and tailwinds driving the industry. In our conversations with healthcare investors over the course of the past year, Intrepid’s Healthcare team overwhelmingly heard that fertility services remain a key area of interest for investment. In addition, 2020 saw a number of prominent acquisitions and investments in the space involving financial sponsors either creating or expanding strategic fertility platforms, a trend of recent years that is expected to continue going forward. Perhaps the most notable of these transactions was the formation of U.S. Fertility by Shady Grove and private equity group Amulet Capital with the assets of IntegraMed, the nation’s largest fertility services platform. This transaction was particularly interesting because it marked the end of the industry’s legacy behemoth after recent years of struggle and began a new era for a new industry leader with a value-added partnership that aims to build a more effective structure for the platform while continuing to improve the experiences of providers and patients alike.
As we look to 2021 and beyond, we remain incredibly excited and optimistic about the future of fertility M&A. Moreover, as capital continues to funnel into the space, we look forward to seeing how platforms will be able to unlock meaningful value for both providers and their patients to ultimately improve outcomes and enable greater access to services in this critically important area of healthcare.
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