Investment bank raises Jefferies to overweight while downgrading Evercore as global deal activity shows momentum
Morgan Stanley analysts have identified a significant turning point in the global mergers and acquisitions market, projecting substantial growth through 2026 as deal activity expands beyond a narrow group of large corporate transactions. The financial services firm adjusted its ratings on two prominent advisory companies, elevating Jefferies to overweight while simultaneously downgrading Evercore to equal-weight.
The rating changes reflect Morgan Stanley’s assessment that the M&A recovery, which gained momentum throughout 2025, is poised to broaden considerably in the coming year. Announced deal volumes increased steadily this year, supported by a shift from concentrated activity in mega-deals to more widespread transactions across various industries and deal sizes.
Projected growth across deal categories
Morgan Stanley’s forecast calls for 1) announced M&A volumes to rise 20% in 2026 and 2) completed transactions to increase 24% as financial sponsors return to the market with renewed vigor. The analysts anticipate that private equity firms and other financial sponsors will become significantly more active participants in deal-making after a relatively quiet period.
The expansion in deal activity is expected to encompass multiple transaction types, including traditional mergers and acquisitions, capital markets issuance, initial public offerings and debt financing arrangements. This diversification should provide broader revenue opportunities for advisory firms that have experienced pressure from limited private markets activity.
Jefferies positioned for gains
The upgrade of Jefferies to overweight comes with an increased price target of $78, up from the previous $74 projection. Morgan Stanley raised its 2027 earnings per share estimate for the company by 1% to $6.31, reflecting improved confidence in the firm’s earnings trajectory.
Analysts highlighted several factors supporting the positive outlook for Jefferies. The company stands to benefit from market share gains in its core advisory business and an expanded partnership with SMBC that should provide additional revenue opportunities. Morgan Stanley also noted that concerns about weakness tied to First Brands have been overstated, suggesting the market has been overly pessimistic about this aspect of the business.
Private markets clients expected to rebound
Concerns about private markets clients weighed on several advisory firms throughout 2025, creating headwinds for companies dependent on financial sponsor activity. However, Morgan Stanley expects this trend to reverse in 2026 as sponsor activity accelerates alongside increased capital markets transactions.
The return of private equity firms and other financial sponsors to active deal-making should provide a significant boost to advisory firms that serve this client segment. These clients typically generate substantial fees through both buy-side and sell-side advisory work, as well as through related financing activities.
Evercore downgrade follows strong performance
While upgrading Jefferies, Morgan Stanley took the opposite stance on Evercore, moving the stock to equal-weight after its strong performance in 2025. The analysts determined that the company’s valuation now looks full following significant outperformance during the current year, limiting potential upside from current levels.
The downgrade doesn’t reflect deteriorating fundamentals but rather acknowledges that much of the positive outlook has already been reflected in the stock price. This type of adjustment is common when shares have experienced substantial appreciation and trade at elevated multiples relative to historical norms.
Market conditions support continued recovery
Despite the projected growth, M&A activity remains below long-term averages when measured relative to gross domestic product. However, Morgan Stanley believes deal volumes are on a clear path back toward historical trend levels through 2026 and 2027, suggesting a multi-year recovery cycle rather than a short-term bounce.
The bank expects compensation ratios at advisory firms to continue declining next year as revenue improves, with the largest reductions anticipated at Moelis. Lower compensation expenses relative to revenue would boost profitability across the sector, enhancing earnings growth beyond what top-line expansion alone would generate.
Valuation considerations and risk factors
Morgan Stanley noted that price-to-earnings multiples on consensus earnings already appear rich across the sector, meaning the next phase of stock performance will depend heavily on rising profit expectations. The firm sees upside potential based on its own 2027 forecasts, which assume stronger revenue growth and lower compensation costs as deal volumes normalize.
The primary risks to this positive outlook include weaker labor market data, escalating geopolitical tensions and any factors that could undermine corporate confidence in pursuing strategic transactions. Boutique advisory firms remain particularly sensitive to broader market pullbacks, which can quickly dampen deal-making appetite among corporate executives and financial sponsors alike.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. The author and publication are not registered investment advisors and do not provide personalized investment recommendations.