The first quarter of 2006 will be remembered as a huge one for mergers and acquisitions. With AT&T's ( T) acquisition of BellSouth ( BLS) pacing the trend, total merger volume in the U.S. was $331 billion from January through March, according to Thomson Financial, up over 19% from the first quarter last year. But behind the headlines, a subtler trend has emerged. The total number of deals this quarter fell from both the previous and year-ago periods. With rising interest rates, higher stock prices and an economic expansion in its third year, companies may start being more cautious about their acquisitions. "Despite the fact that we are growing at a good pace, the growth rates are going to slow," said Marc Pado, chief market strategist at Cantor Fitzgerald. "That in and of itself makes chasing a deal less desirable." On average, total value per deal was $1.49 billion, compared with about $1.23 billion in the first quarter last year. Larger transactions kept the M&A market buoyed; it was a number of smaller ones that petered out. Many of the deals announced this quarter were from private equity companies, including Blackstone's acquisition of CarrAmerica Realty ( CRE) for $5.6 billion. Their acquisitions usually come with a heavy debt ticket, something that will get more expensive with rising interest rates. "Not all of these deals are done by using cash," said Pado. "If there is any debt already or if they are going to have to incur any debt to make the purchase or combination, then the less profitable the deal will be." Many companies have also done a significant amount of levering and refinancing over the past few quarters, often using proceeds to buy back shares or pay dividends. As firms begin closing in on their leverage capacity, issuing new debt won't be quite as easy.