Christopher Niesche: Why IVF is hot property in Aussie while house prices come back on the agenda

OPINION:

In the past 40 years, the average age of mothers giving birth in Australia has risen from 27 to 31.

Women are studying for longer, investing time to establish their careers, and waiting longer until they buy their first home. These are all contributing to their decision to delay motherhood.

It means many more women are turning to invitro fertilisation to help them conceive after they have passed the age at which they can do it easily.

With one in six couples now struggling to conceive naturally, IVF is a cash cow for the private sector corporations providing the service.

All of this explains the hard-fought takeover battle for Virtus Health, a share market-listed fertility provider with a market capitalisation of about $700 million.

The takeover battle has been running since December and pits UK-based private equity firm CapVest against local PE outfit BGH.

Shareholders have seen the takeover price rise from $7.10 to $8 as the two private equity investors have made offer and counter offer.

Shareholders have done very nicely in the tug-of-war, with stock in the company sitting at $5 immediately before the takeover bid. With shares trading for $8.15 on Friday, investors clearly believe this fight isn’t over yet.

Data from Australian government healthcare funding agency Medicare reveals November 2021 had the highest number of stimulated fertility cycles on record, with 5760 cycles. Cycles were up 11.3 per cent on October’s numbers and analysts expect the strong numbers to continue.

At about $10,000 each cycle, that’s a lot of money each month.

Additionally, there is an increase in genetic testing to screen for inherited diseases, also requiring IVF.

As strong as growth has been up until now, private equity investors clearly expect more. They are squarely focused on finding growth businesses they can invest in and sell a few years later for a very healthy profit.

IVF is becoming far more widely accepted and used, and assisted reproduction is now seen as more of a right than a privilege.

In January the Victoria government overturned a pause on IVF treatments instituted as part of its Covid safety measures to reduce non-urgent medical procedures.

The decision was a result of public pressure, sparked by a Facebook post from 45-year-old woman Melanie Swieconek, and is testament to the growing power of the IVF industry, the most corporatised branch of medicine in Australia.

And as IVR becomes more widely accepted and more widely expected, the Australian government will fund more and more parts of the procedure. In November, for instance, Health Minister Greg Hunt announced expanded Medicare rebates for five types of pre-implantation genetic screening (PGT), which looks to identify embryos at risk of carrying serious disease before they are implanted in a womb.

All of this means that IVF is available to a much larger portion of the population than the older middle class couples who have traditionally used it.

And this is what makes it so attractive to private equity – a growing market where the government picks up much of the tab. They can’t lose.

And nor can the owners of IVF clinics.

It’s likely that whichever of the private equity groups misses out on Virtus Health will make a tilt at Monash IVF, Australia’s other share market-listed fertility treatment provider. Monash IVF’s shares have risen from about 90c at the start of December to $1.21 on Friday, based on the expectation that it’s the next target.

House prices on the wane

After inexplicably rising in the midst of a global pandemic which, for a while at least, threatened to push the economy off a cliff, Australian house prices are now set to fall.

As we adjust to living with Covid and its impact on our daily lives becomes less and less, the housing market is cooling off.

Of particular concern is the likely effect of interest rate rises, a phenomenon not experienced by many homeowners.

Official interest rates haven’t risen in Australia since 2010. The Reserve Bank has been forced to do the heavy lifting in promoting economic growth in the face of governments who weren’t prepared to dip into the tax take for fiscal stimulus.

That all changed with the pandemic, when it was all hands on deck from the Reserve Bank and Australia to save the economy.

Now that the economy is out of danger and unemployment is sitting at 50-year lows, the RBA is thinking about the first interest rate rises for a very long time.

In its Financial Stability Report released on Friday, the RBA warned that if interest rates rose as much as the money markets are expecting – 2 percentage points – the house prices will fall by as much as 15 per cent.

On its own this would be no bad thing and they would still be sitting at crazy levels. But to the extent that households feel poorer – the negative wealth effect – and rein in their spending it presents a risk to consumer spending and the retail economy.

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