The volume of hospice mergers and acquisitions continues to rise, with more than 23 publicly announced transactions during the third quarter of the year, up from 17 in Q2.

M&A advisory firm Mertz Taggart tallied these numbers in a quarterly report, indicating that Q3 saw the most hospice transactions since the final quarter of 2020, which had 29 deals.

Providers may be trying to complete more of the deals in their pipelines before the end of the year in anticipation of possible capital gains tax increases in 2022.

“The Biden administration came out of the gate with some pretty draconian targets,” Mertz Taggart Managing Partner Cory Mertz said. “The current ‘Build Back Better’ reconciliation package is still in negotiations, but it appears to be much less severe than the original targets.”

The Biden administration’s proposal is to raise the tax rate on long-term capital gains to 43.4%, up from the current 23.8%. The Internal Revenue Service (IRS) applies capital gains taxes to the proceeds generated by selling investments. 

Biden floated the tax proposal in an April 28 address to Congress. Legislative action would be necessary to enact the proposal, which to date has not occurred. Republicans have indicated that they intend to fight the move, which would roll back Trump-era tax cuts. The prospect of congressional approval remains uncertain, but may sellers are taking a “better safe than sorry” approach. 

The pandemic may also be pushing some companies to sell, particularly some of the smaller organizations that have been battered by associated headwinds such as dropping lengths of stay, skyrocketing supply costs and employee turnover and paid leave.

“We’ve heard from many owners who are feeling a sense of burnout,” Mertz said. “Maybe they were already thinking about a sale in the next couple of years, but then the ongoing pandemic just accelerated their timelines.”

Private equity firms are staying bullish on hospice and other home care sectors. Among the 44 hospice, home health and home-based care deals in Q3, PE groups and their portfolio companies accounted for 25. Publicly traded companies completed 16 transactions, according to Mertz Taggart.

The largest transaction in the quarter was LHC Group’s (NASDAQ: LHCG) acquisition of 23 home health locations, 11 hospice and 13 therapy businesses from the joint venture between Brookdale Senior Living Inc. (NYSE: BKD) and HCA Healthcare (NYSE: HCA). These included offices in 22 states, or those that are located outside of HCA’s service region.