In the latest Financial Standard FS Super article, Philippe Poggioli, managing partner at Access Capital Partners, discusses how shifting geopolitical dynamics, including ongoing US-China trade tensions, rising protectionism, and evolving supply chains, are reshaping global capital flows.
As global uncertainty grows, Europe is emerging as a region of relative stability and untapped investment potential.
BY PHILIPPE POGGIOLI | FRIDAY, 8 AUG 2025
The heightened volatility and unpredictability of US trade policy has made Europe more attractive to institutional investors seeking greater stability and certainty. There has been a visible shift of capital towards European assets, as the region is perceived as offering more predictable regulatory and economic conditions compared to the US. This has been particularly evident in recent months, with renewed inflows from international investors. Europe is increasingly being perceived as a safe haven, a place where long-term value creation is still possible amid global turbulence.
In particular, the European private equity space is getting a high level of attention and interest from institutional investors. The direct impact of the unpredictable US policies has been limited in this space, particularly for small cap companies where the vast majority generate most of their revenue within Europe. Small cap companies have shown resilience and superior liquidity for investors than larger cap companies in the last three years.
Tailwinds for European private equity
There are several tailwinds creating opportunities for European private equity investors as a result of the ongoing market uncertainty and the resilience of the European market.
Sector rotation: Sector rotation is underway as investors seek diversification, with private equity investors increasingly prioritising resilient, high-growth areas such as IT, software, and healthcare, sectors which are less exposed to global trade disruptions. These areas are being buoyed by structural trends like digitalisation and demographic change. Business-to-business (B2B) services and infrastructure businesses are also in demand, offering defensive profiles that are attracting investors in these more uncertain times.
Innovation in dealmaking and value creation: This is another bright spot for the European private equity market. With fewer mega-deals on the table, private equity is doubling down on operational excellence, digital transformation, and add-on acquisitions, whereby private equity firms create European champions by aggregating several companies to consolidate a given sector around the best management team – this strategy is at the centre of their return pattern and is tremendously relevant in the fragmented European context. The adoption of data analytics, artificial intelligence, and commercial excellence strategies is helping funds unlock value in existing portfolios.
Improved financing conditions: As interest rates stabilise and banks return to the market, improved access to debt is supporting renewed M&A activity, especially in the mid-to-large-market segment. This is expected to facilitate both new investments for these upper segments and exits for small cap deals.
Green transition: Private equity has a critical role to play in accelerating Europe’s transition to a low-carbon economy. By mobilising capital, providing governance, and supporting operational transformation, there is demand for private equity to help smaller and medium sized businesses adapt to new sustainability expectations. We see value in private equity’s ability to support this operational transformation and also contribute to broader goals around European sovereignty, including reducing dependence on non-EU supply chains and strengthening local economic resilience.
Private equity sentiment in small caps
The situation for private equity investors in Europe remains more optimistic than many of the prevailing news reports suggests. Recent times have seen interest rates fall, which has lowered the cost of finance. Having said that, in the small cap sector, the real drivers of value remain the quality of underlying businesses, market dynamics, and the ability to build value. The stabilisation of rates has provided a gentle tailwind, but it is not the primary force shaping outcomes.
Small cap buy-outs generally involve lower entry multiples, and the need for high debt financing is reduced. This makes deal activity in this segment less sensitive to fluctuations in interest rates and changes in the availability of acquisition financing. So, while improved financing conditions and stable rates have supported overall market sentiment, they have not been the primary drivers of deal flow or valuations in the small cap space. Instead, factors such as the quality of the underlying businesses, local market dynamics, and the ability to execute operational improvements and drive value creation are more influential.