The heightened volatility and unpredictability of US trade policy has made Europe more attractive to investors seeking stability and certainty, according to Philippe Poggioli, managing partner of Access Capital Partners, a leading European private equity firm focused on small cap buy-outs through primary fund commitments, secondary transactions and co-investments.

The fund manager sees strong opportunities in Europe, with Donald Trump’s return to the US government introducing greater stock market volatility and economic uncertainty in the world’s biggest economy. In contrast, European small cap buy-out returns have shown resilience in the last three years with superior liquidity for investors versus larger cap deals.

That has clearly resonated with institutional investors who are increasingly turning their attention towards investing in quality small cap businesses across Europe. “More broadly, 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,” Poggioli said.

“While trade tensions and protectionist measures in the US have moderated the pace of cross-border merger and acquisitions activity, these dynamics also encourage private equity firms to reassess their risk profiles, strengthen supply chains, and prioritise resilient sectors such as IT, healthcare, and business-to-business (B2B) services, spaces that are less exposed to global trade disruptions and supported by structural trends like digitalisation and demographic change. This context highlights the importance of adaptability and the importance of a focus on long-term value creation for investors.

“Small cap buy-out transactions lend themselves particularly well to buy and build strategies 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,” Poggioli said.

The small caps sector, where companies are valued at less than €100m at entry, presents very different dynamics to the mid-caps and large caps sectors, according to Poggioli. While falling interest rates is positive for economies overall, it is not as important for small cap investments, where the quality of an underlying business is crucial for an investor's return.

“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 remained more influential,” he said.

More broadly, as interest rates stabilise and fall in some countries, 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 and exits," said Poggioli.

“Despite global turbulence, Europe is increasingly seen as a relative safe haven, attracting capital seeking stability and diversification. Recent months have seen renewed inflows from both domestic and international investors, including US investors, as confidence in Europe’s economic recovery grows.