A stumble in the pace of special purpose acquisition (SPAC) vehicle M&A could spell trouble for a go-to exit path for private equity. Deals inked by SPACs peaked in February, when a record 54 transactions amounted to $116 billion in M&A value. Since then, both the number and value of deals have fallen to levels still historically high, but far off the peak, according to data from Refinitiv through April. 

Two months of decelerating deal flow hardly makes a trend. However the fall in M&A value suggests one exit avenue for private equity may be under pressure.

Stock market volatility is a likely culprit. SPAC equity issuance lags deal activity–note that IPO proceeds peaked a month after February’s record M&A deployment. There are signs that a frothy market recovery could be in flux. Auditory service provider Hear.com and communications company Zeniva are reportedly delaying initial offerings otherwise set to trade today worth a combined $500 million at the midpoint of their ranges, the Wall Street Journal reports. 

Meanwhile, major stock indexes have posted declines in recent weeks over inflation fears.

The news comes as panelists told Mergers & Acquisitions that growing, stable and professionally managed companies have little problem navigating an exit in the current environment. Exceptions are changes in C-level managers and covenant trip ups, said Juan Alva, managing director of Pelham S2K.

It’s unclear whether a narrowing public market exit path will have an impact on deal flow or exit valuations. Respondents to a recent survey of PE fund managers said they overwhelmingly expected asset prices and the multiples paid for them to continue to rise. Why sell to a SPAC when private buyers will pay full price? And participants also noted competition for targets was already showing signs of intensifying from a lull in 2020. Will that be enough to pick up a bit of slack? 

Stalling equity markets could also put more corporate carve-outs in play for financial sponsors. Conglomerates weighing a spinoff alongside an auction might be more inclined to go the sale route should markets continue to encounter chop. Good news for club deals, even if buyers may have to hold onto their portfolio companies longer than once expected.