- European PE has recently outperformed U.S. PE on returns, supported by lower entry multiples and more supportive ECB rate cuts.
- Europe’s dealmaking and fundraising are accelerating, lifting its share of global private capital to a record ~34% in 2025.
- Large valuation gaps—especially in tech-adjacent sectors—create a potential entry advantage if exits and growth converge toward U.S. levels.
- Because markets are fragmented and outcomes vary widely, success depends heavily on selecting specialized local managers and underwriting distinct European exit and regulatory risks.
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Market Performance and Returns
PitchBook’s Global Fund Performance Report indicates European PE funds achieved a rolling one-year internal rate of return (IRR) of ~9.1% in Q1 2025, surpassing U.S. PE funds which posted ~7.7%. This shift is grounded in both cheaper borrowing costs—ECB has delivered more aggressive rate cuts since early 2024—and greater exit and deal momentum across Europe. Global deal value in 2025 rose ~43% year-over-year (YoY), to $468.5B, with Europe contributing meaningfully to that increase through increased buyout, venture growth, and infrastructure deals.
Valuations: Entry Multiple Gap
Valuation gaps between U.S. and European deals remain wide, especially in tech-adjacent sectors. For instance, fintech exits in the U.S. have multiples nearly 90% higher than in Europe; software exits show U.S. multiples ~168% higher. Moreover, European venture valuation at entry is roughly 45% of U.S. levels for median pre-money rounds—while deal sizes are also significantly smaller. These gaps support the thesis that Europe offers cheaper entry, though sometimes with delayed growth trajectories or more constrained exit paths.
Fragmentation and Structural Opportunities
Europe’s complexity—in languages, regulations, growth expectations, and cultural norms—continues to impose both challenge and opportunity. Local managers with deep networks are proving essential to access proprietary dealflow and to navigate regulatory quirks. Institutional investors are increasingly favoring managers with regional specialization, operational expertise, and experience in sectors shaped by industrial policy (infrastructure, energy, defence).
Strategic Implications
• Investors willing to deploy capital with longer horizons and patient underwriting can capture entry returns as valuations converge.
• Focus on manager selection—local presence, domain strength, deal sourcing capabilities define performance dispersion.
• Sector strategy tilting toward infrastructure, industrials, energy, and regulated sectors where low competition and policy tailwinds exist.
• Exit risk remains—it’s essential to model exit liquidity and timing differently in European markets (IPO windows, trade acquirers, secondary sales) than in the U.S.
Risks & Open Questions
• Inflation and macroeconomic instability: while ECB cuts have helped, Europe remains exposed to energy costs and supply risks.
• Policy & regulatory fragmentation: cross-border consolidation hindered by capital markets fragmentation, diverse labour laws, tax regimes.
• Talent and scaling constraints: U.S.’s culture of founder exits, ESOPs, and risk tolerance still lead to accelerated growth often missing in EU early-stage.
• Exit environments: US markets remain deeper; Europe IPO markets are gradually recovering but still constrained.
• Currency risk: fluctuations (e.g., Euro vs. USD) can erode returns for international LPs.
Supporting Notes
- European PE funds’ rolling one-year IRR in Q1 2025 was 9.1%, ahead of U.S. funds at 7.7%.
- Global private equity and VC deal value increased ~43% in 2025 YoY to about $468.5B; late-stage and middle-market growth drove much of this increase.
- Europe captured ~34% of global private capital through September 2025—its largest share since at least 2010—raising $311B; infrastructure-oriented funds, particularly, saw strong inflows ($57B to date).
- Buyout deals in Europe valued >$1B in 2024 totaled ~$133B, up ~78% from 2023, outpacing increases in other regions (~29%).
- Median pre-money valuations in early-stage rounds in Europe are ~45% of U.S. levels; valuations are lower, deal sizes smaller, and dilution higher.
- U.S. exit multiples in fintech nearly 90% higher, software ~168% higher between US vs. Europe exits in tech M&A (2020-2025).
- In Europe Q3 2025, deal count ~1,107 deals totalling ~€121B; largest five deals contributed €50B. Fundraising in region was €437B across 202 funds, while Brexit and macro continue to pose localized headwinds.