Fertility M&A Reaching New Heights

2019 produced another record year for M&A activity in the fertility services sector as financial sponsors and strategic acquirers alike continued making moves to develop and consolidate the highly fragmented landscape. Perhaps one of today’s hottest areas for healthcare investment, fertility continues to see strong demand as a result of compelling tailwinds that are driving sustained growth for providers and paving the way for substantial expansion. Some of these growth drivers include trends towards delayed parenthood, high obesity rates, and the expansion of insurance coverage for fertility services, all of which have continued to bolster broader growth across the industry. Other trends, such as the increased prevalence of global fertility tourism and rising demand from the expanding community of LGBTQ+ families, are being most successfully addressed by practices with programs in place that are specifically geared towards key target populations.

As we continue to closely follow the fertility services industry and discuss the space extensively with industry experts, physician entrepreneurs, and healthcare investors, we believe the following key takeaways highlight the immense opportunity ahead for fertility entrepreneurs and investors:

Consolidation Continues – The opportunity for consolidation remains immense, as the vast majority of the nation’s cycle volume continues to be spread out over smaller clinics. Although over 284,000 cycles are performed in the US every year, only about 14% of practices have annual volumes over 1,000 cycles.

Strong Investor and Acquirer Demand – Demand for “conventional” fertility services providers remains stronger than ever, with particular interest coming from strategic acquirers and private equity-backed strategics both within and outside of fertility who are looking to consolidate volume, expand geographically, provide back-office physician support and marketing services, and/or add new service lines to cover a broader continuum of care.

Differentiation Matters – Financial sponsors are aggressively seeking fertility groups with differentiated service offerings to partner with as new platforms. As with any physician specialty, those practices that offer strong volume, better outcomes, and a well-known brand are increasingly sought after as practices scale. In fertility, practices can further distinguish themselves by offering differentiated solutions like more natural, less drug-intensive treatment options, by developing infrastructure and language capabilities to accommodate global fertility tourists, and by having focused marketing efforts and services aimed at LGBTQ+ families.

Looking Beyond the Clinic – While fertility clinics continue to draw a lot of interest, innovative technology companies providing third-party reproduction, cryopreservation, and other ancillary tools and services have also begun to receive heightened investor interest. Over the last year, a number of investments have been made, particularly in the venture capital community, backing ancillary service providers who are working to build and improve efficiencies across the broader industry.

Favorable Payment Trends – Whereas many of today’s physician specialties are under severe pricing pressures, fertility services reimbursement outlook appears to have a uniquely positive trajectory. Government and commercial insurers (particularly employer-based plans) are increasingly offering fertility services, while this industry’s large cash-pay population, a limited supply of experienced reproductive endocrinologists, and other industry dynamics are expected to cushion much of the downward pricing pressures going forward.

With all of this in mind, we remain very excited about the future of M&A in the fertility services sector and anticipate another record year ahead.