Scoop: Lee Equity's Inception Fertility seeks buyer

Lee Equity is exploring the sale of Inception Fertility, the largest IVF care provider in the U.S., multiple sources tell Axios.

Driving the news: A sale process formally kicked off in June, with first-round bids submitted last week, sources say.

• Moelis is providing sell-side advice, they say, with the process expected to garner interest from both standalone sponsors and strategics.

By the numbers: Inception, based in Bellaire, Texas, is forecasting approximately $90 million of 2022 pro forma adjusted EBITDA, including pending M&A, the sources say.

• It's too early to peg valuation, they say, but high-growth health care services assets have tended to fetch mid- to high-teens multiples, with some fetching 20x-plus.
• In recent relevant activity, KKR in April agreed to buy Spanish fertility giant Ivirma in a deal valued at €3 billion ($3.2 billion) or more, representing a more than 20x multiple.

💭 Our thought bubble: It's unclear how hard strategics will run at Inception, but freshly capitalized Ivirma, the largest industry player worldwide, could be a logical suitor if it wants to add to its existing North America footprint in a meaningful way.

• There's also Nordic Capital, which invested in the U.K.'s CARE Fertility in January and hinted at plans to support management with its "international growth ambitions."

Catch up quick: Lee Equity invested in what was then known as Prelude Fertility in 2017, merging it in 2019 with Inception Fertility.

• Waypoint Capital joined as an investor in 2018.

State of play: The process comes as broader macro issues and the financing markets deter many scaled assets from going to market, with few billion-dollar-plus health care services processes still alive.

• That said, direct lenders have continued to step up for high-quality assets as the syndicated market sits on the sidelines.

Yes, and: The Roe v. Wade reversal and potential ramifications continue to dominate headlines in women's health.

• On June 24, Inception said, "Today’s ruling does not limit or prohibit Inception’s ability to provide high-quality IVF as we always have, and none of the 'trigger' laws taking effect in the states where we operate will do so either."
• While questions remain unanswered as to the impact of egg storage in certain states, sponsors so far believe the ruling won't impede industry demand. And, one source adds, "women's health is high on [investors'] lists."
• Still, depending on what regulators in purple states decide, it may require IVF clinics in certain geographies to make operational or logistical changes, sources note.

Between the lines: All of this noise could be offset by fertility care's strong supply-demand dynamics and scarcity value.

• The market is also witnessing growth in employer coverage, while technology advancements that support higher success rates could yield cost savings.
• The list of PE-backed fertility platforms is fairly short, but there's a long runway to consolidate solo practitioners.
• Other sponsor-backed players include Amulet Capital's US Fertility, Webster Equity Partners' Santa Monica Fertility, Morgan Stanley Capital Partners' Ovation Fertility and InTandem Capital's Ivy Fertility.

Yes, and: Despite how timely and costly IVF treatment remains, volume for services is often characterized as growing at a more than 10% CAGR — outpacing the growth of other specialties in provider-land, sources note.

• That dynamic could insulate the industry from pressures of labor shortages and wage inflation — perhaps making it more investable.

The bottom line: Inception's outcome and price are still TBD, but a successful trade could represent a bellwether for fertility, particularly against today's political and regulatory backdrop.

Inception and Moelis declined to comment, while Lee did not return requests for comment.