There is no shortage of explanations for why European equity markets had a banner year in 2025.
A falling dollar. Rising geopolitical tensions. Undervalued European companies selling at historic discounts. The rotation out of technology and into HALO (Heavy Asset, Low Obsolescence) stocks.
But the most powerful driver of surging European equities may also be the most durable:
Europe has many exceptional, well-run businesses.
According to Dominic Lester, Jefferies EMEA Head of Investment Banking, European companies have always had to deal with fragmented markets, different regulations, and different languages. So, when they do achieve scale, that means you have a business that knows how to deliver value and tends to be very resilient.” Although the outbreak of conflict in Iran has rattled markets in the short term, the long-term growth story for many European companies remains compelling.
On March 24, in London, Jefferies will host its sixth annual Pan-European Mid-Cap Conference, where over 200 European businesses and almost 500 investors will forge connections and discuss the most notable trends shaping the sector.
We recently spoke with Dominic Lester and his colleague Lorna Shearin, Deputy Head of EMEA Investment Banking, to get their take on the state of European economies and the transaction environment. We also connected with Ed Keen, Head of Equities EMEA, and Alex Coffey, Head of EMEA Research, for additional perspective on why mid-sized companies are attracting so much investor interest.
Here are some of their most notable insights:
Finding Excellence in European Equities
Dominic: There are so many genuinely global businesses with leading capabilities based here, particularly in old-world sectors like industrials, mining, and aerospace and defense, which is obviously in and of itself becoming a major theme.
Private equity from the U.S., Asia, and around the world is increasingly interested in these kinds of companies, often available at low multiples. There is a geopolitical element here, too: A fair number of LPs are reallocating money from the U.S. to Europe.
There is also real leadership in terms of European companies developing interesting applications to leverage AI technology. In fact, I recently read a big study showing that European companies and their employees – particularly those in Scandinavia – are further along in adopting AI technology and tools than their peers in the U.S.
On the European Deal Environment
Lorna: Last year, there were fewer transactions overall, but you saw many large transactions, along with take-private and mega-sponsor deals becoming more prominent. Sponsors still have a large backlog of unsold assets, which is why continuation vehicles remain an important part of their portfolio mix. One distinctive dynamic in Europe is the tremendous number of family-owned and founder-led businesses. We are entering a generational transition that will present a diverse set of opportunities across geographies.
On the Unique Opportunity in Midcaps
Ed: Europe has a very different liquidity profile than the U.S., with U.S. companies, on average, much larger and having access to deeper liquidity. Consequently, US volumes have been much larger than those in Europe, which has a comparatively limited level of very active retail investor participation. One outcome of this is that European midcaps have market caps more like those of U.S. small caps. This does, however, create a lot of opportunity. When you invest in European midcaps, you often have a chance to generate more alpha because these businesses aren’t as well-covered or understood by the market. This is one of the reasons Jefferies has invested so heavily in our equity research, to the point that we are number one in mid-cap coverage across pan-European equities.
As 2026 began, you saw companies everywhere, including in Europe, being evaluated for their exposure to AI disruption risk. No one knows for sure how that will play itself out. In the meantime, whilst most of the leading-edge AI technology development is happening in the U.S. and Asia, Europe is investing heavily in supplying much of the infrastructure the AI industry needs. The difference in diversification is drawing more money out of the US and into Europe.
Alex: Today, the mid-cap universe in Europe is trading at a 10% discount to large caps, despite generally offering more growth and strong competitive advantages. Think about the journey of a company that IPOs, starts as a small-cap, and grows into a mid-cap. There’s a big survivorship bias right there, because only the best ones make it to this point. Look around Europe, and you will also see many companies you have probably never heard of, making everything from skiing helmets to bike racks, that are the absolute best at what they do. You see a lot of great European midcaps that are asset-light – so they have great gross and operating margins – that are central to helping other companies design and develop products.
Finally, there’s also some simple reversion happening. You can believe that the U.S. is the most open and dynamic economy in the world, yet still think some rebalancing was in order when U.S. stocks reached nearly two-thirds of the global equity market value, as they did recently.
On What’s Ahead
Lorna: I think we are entering a cycle defined less by financial leverage in capital structuring and more by operational leadership. Some of these companies have absolute excellence in navigating different jurisdictions and regulations. They are led by people with good operational leadership who tend to have good strategic leadership and a good sense of where there might be acquisition or consolidation opportunities. Investors want to back these kinds of leaders. Advice matters more than ever in an environment where you’re relying on operational leadership to really grow a business, and that’s yet another reason why Jefferies is so well-positioned in Europe.
Dominic: At the policy level in Europe, there is still a lot of nationalistic thinking and sclerotic behavior. But some existential issues – notably on defense – are spurring a renewed sense of urgency that, over time, can create a more favorable operating environment for European companies. In the meantime, we are seeing a lot more private-sector collaboration, with established companies partnering with startups and startups securing funding.
Europe must also invest significantly in its defense and industrial base. Where will all that money come from? A big part of the answer will be private equity and big infrastructure funds that partner with government and corporate clients to provide the capital needed for a significant build-out of European infrastructure. We are very much on the front end of a durable long-term investment story.
