Buying Prices of REI Practices Down In Multiples of EBITDA, According to Sector Advisors
BY: RON SHINKMAN
M&A activity in the fertility sector was sluggish during the first quarter of 2023 compared to the same period last year, although momentum toward bigger deals is building in the second quarter.
According to Irving Levin & Associates, a Connecticut-based firm that closely tracks M&A in the healthcare space, there have been eight transactions involving fertility practices or platforms so far in 2023. That compares to 16 through the first four months of 2022 and 40 for all of last year, according to Irving Levin Managing Editor Ben Swett.
The slowdown in healthcare M&A – specifically the acquisition of physician practices, which include fertility clinics – began in the second half of 2022, according to a report by Bain & Co.
Among the factors behind the slowdown: Borrowing costs have quintupled since the start of 2021. The Federal Funds Rate – the benchmark for setting interest on loans – rose from below 1% at the start of 2021 to 4.83% as of the end of April. .
Richard Groberg, the managing member of RSG Advisors in Las Vegas, noted that buyers were wary toward the end of last year into the beginning of 2023.
Buyers for fertility practices and related businesses “were nervous,” Groberg said. “They were nervous about interest rates. They were nervous about inflation, and they were nervous about whether (those factors) would affect demand for fertility treatment.”
However, some of those concerns appear to have dissipated according to Groberg, who noted that his current pipeline is “very busy.”
The year 2022 was record-breaking for deals involving physician practices, which includes fertility clinics. According to Irving Levin, there were 608 such transactions last year, up from 457 in 2021, a 33% increase. In related healthcare services – which includes fertility storage businesses – there were 574 deals last year, compared to 477 in 2021.
Among the deals that were publicly announced:
Ivy Fertility acquired Fertility Associates of Memphis (announced February 14)
INVO Bioscience acquired the Wisconsin Fertility Institute (announced March 20)
Maven Clinic also acquired the digital health company Naytal, but that was with the intent of building business in the United Kingdom, not the U.S. (announced March 21)
Meanwhile, there are stronger tailwinds toward dealmaking at the start of the second quarter. Among the deals announced or closed in recent weeks include:
The planned acquisition of Morgan Stanley-owned Ovation Fertility by US Fertility (announced on April 3);
CCRM Fertility’s acquisition of the New Hope Center for Reproductive Medicine (announced April 18);
Ivy Fertility’s acquisition of Virginia Fertility and IVF (announced April 17).
Executives at several major fertility companies: First Fertility, Pinnacle Fertility, Inception Fertility and The Fertility Partners, either declined comment on current acquisitions and trends, or did not respond to a request seeking comment.
While M&A activity appears to be perking up, both Groberg and Hayden Rosenthal, an associate with Intrepid Investment Bankers in Los Angeles, say that the multiples of earnings before interest, taxes, depreciation and amortization (EBITDA) to determine purchase prices have gone down.
“In the first or second quarter of last year, (fertility practice multiples) were at 12 or 13. Now it’s 10, or maybe 11,” Groberg said.
According to Rosenthal, multiples continue to be fairly strong, but they are off from their late 2021 highs. He said they are currently running in the high single digits for one or two physician practices, and the low to mid-teens for larger operations.
Swett noted that there are few multiples publicly available on transactions. Irving Levin was only able to obtain clear numbers on INVO’s purchase of Wisconsin Fertility Institute. The three-physician practice reported 2022 revenue of $5.5 million, and EBITDA of $1.9 million, according to Irving Levin. The $10 million sale price was based on an EBITDA multiple of 5.2. The payments will be made in equal payments over four years, with the first payment in cash. The sellers have the option of taking future payments in INVO stock, according to Irving Levin data.
“Times are a little tougher, and people are a little more hesitant, particularly investors or private equity-backed platforms,” Rosenthal said. “Some of them are still doing acquisitions for sure, but some people have been a bit more conservative and are taking a ‘wait and see’ approach.”
The themes reported in this publication are those of the news. They do not reflect the views of Inside Reproductive Health.
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