(Bloomberg) -- Europe’s fertility clinics are used to helping prospective parents make babies. Now, they may help direct lenders make money.

Direct lenders have backed private-equity buyouts of clinics across Europe, as they seek to tap into an industry largely immune to economic downturns and potentially ripe for consolidation. Deals already include the purchases of The Fertility Partnership, which gives treatments in the U.K. and Poland, and Care Fertility, and more may be on the way.

“It’s become a highly desirable sector given the demographic tailwinds,” said Patrick Schoennagel, managing director at Houlihan Lokey’s debt capital markets group. “It’s seen as more resilient to the economic cycle than most other industries.”

Private-equity funds see a chance to replicate previous successes in the dental sector, where they combined different businesses across Europe, and then boosted sales while cutting costs. Direct lenders are funding high-leverage deals attracted by the “underlying credit strengths,” Schoennagel said, as they seek to deploy bulging cashpiles raised in recent years.

Debt financing from Apollo backed the acquisition of Care Fertility by Silverfleet Capital last month. Direct lenders are also vying to provide debt for the acquisition of Germany-based VivaNeo, which may be sold by owner Waterland Private Equity, according to people familiar with the matter.

Companies in the sector are being snapped up by sponsors at high single digit multiples, according to a report by mid-market advisory firm Clearwater International. Recent transactions involving three mid-sized firms had revenues ranging between 20 million pounds ($26 million) and 30 million pounds, the report said.

In the case of dental clinics, sponsors such as Jacobs Holdings and Nordic Capital have built pan-European chains in recent years.

Flush With Cash

Buyout groups see fertility clinics as an opportunity to implement a “buy and build” strategy, in which they bolt together smaller companies into chains spanning many countries.

For direct lenders, this means a chance to provide add-on facilities to support acquisitions, substantially increasing the size of the initial debt provided -- an appealing proposition for managers flush with cash.

Direct lending funds are raising money at a record-setting pace, collecting $19.4 billion so far this year as yield-hungry institutional investors pile into the private credit market, according to research firm Preqin. Three of the five largest private credit funds that closed in the first quarter were European, and two were for direct-lending strategies.

Still, investing in fertility clinics isn’t without its share of risks. Clinics can be very reliant on physicians with high success rates, and a roll-up strategy could dilute reputations, fund managers say. Staff shortages in the health-care sector are also a concern.

Rising infertility rates and cuts in government budgets are driving growth in private treatment centers. The global in-vitro fertilization market, of IVF, is expected to expand 10.2% annually to reach $36.2 billion by 2026, according to a report by consulting firm Grand View Research.

“Investors also like the fact that IVF is very anti-cyclical,” said Ramesh Jassal, head of health care at Clearwater International. “Opting for a treatment is an emotional decision that people will take regardless of what the economy is doing.”

To contact the reporter on this story: Marianna Aragao in London at mduartedeara@bloomberg.net

To contact the editors responsible for this story: Sarah Husband at shusband@bloomberg.net, V. Ramakrishnan, Neil Denslow

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