USA – CALIFORNIA Trends and Developments Contributed by: Derek Liu, Aarthi Belani and Lawrence Lee, Baker McKenzie
ing a new revenue stream from management or servic- ing fees. These joint venture structures are sometimes preferred due to requirements by project lenders or offtakers that the owner-developer retain a controlling interest in the project in part based on their long-term operating and project management experience. Baker McKenzie has supported joint venture transactions in 2025 involving large portfolios of operating utility- scale solar, storage and distributed solar assets. In an environment of changing regulatory and incen- tive dynamics, buyers are approaching strategic ener- gy transactions with heightened diligence (including using representations and warranties insurance in the US market, which historically has not been com- mon for energy-related M&A), selectively evaluating targets with a focus on regulatory risks and oppor- tunities as well as supply chain exposure. Legal due diligence routinely includes assessments of potential changes in law and scrutiny of supply chain vulner- abilities, especially in markets subject to geopolitical or regulatory uncertainty. This rigorous approach ena- bles buyers to identify and mitigate risks, negotiate appropriate protections, and ensure that acquisitions align with long-term strategic objectives. Private equity and M&A in 2025 Looking back, the outlook for 2024 was cautiously optimistic given that inflation was widely perceived as gradually tempering and interest rate cuts were pro- jected to be on the horizon. Against that backdrop, deal making in 2024 gained some momentum, and the overall consensus was that 2025 would ride the momentum and culminate into an even stronger year. Indeed, the global private equity buyout deal count during the first quarter of 2025 was approximately at an even level compared to the first quarter of 2024. However, tariff turbulence, policy uncertainty and ris- ing interest rates in the second quarter led to a slow- down in deal activity, with the deal values announced in April falling 24% below the monthly average com- pared to the first quarter of 2025, and with deal count falling by 2%. The third quarter of 2025 saw a rebound, whereby deal value increased compared to deal values for both Q2 of 2025 and Q3 of 2024, despite deal count decreasing in both instances. The
buoyant activity that marked Q3 of 2025 was primarily driven by a few large, high-value transactions. Despite strong investor appetite for liquidity and a desire to deploy capital, many sponsors grappled with how to unlock value as cost for capital remained high. High interest rates and longer holding periods raised the required earnings growth to achieve return thresholds, thereby leading sponsors to emphasise operational performance. The various factors discussed above have prompted the use of continuation funds and secondary transac- tions, as well as corporate carve-outs, as discussed further below. Additionally, fundraising efforts contin- ue as sponsors grapple with tighter capital allocation. Secondary/”continuation” funds The H1 2025 secondary market reached USD103 bil- lion, greatly outpacing the previous H1 2024 activity of USD68 million, and marking the most active six-month period in market history for secondary transactions. Specifically, the activity in the secondary market in the first half of 2025 consisted of: • 50% of the transactions being incentivised by port- folio rebalancing and the desire for liquidity; • 25% of the transactions being related to wind- downs; • 23% of the transactions being to reduce non-core strategies and competences; and • 4% of the transactions being to de-risk an overall portfolio. Continuation funds remain a dominant component of the limited partners (LPs) liquidity landscape, enabling investors to access liquidity while preserving align- ment with the private equity fund general partners (GPs) on key assets. Such transactions enable the GP to retain high-performing assets when market con- ditions or asset valuations may undermine the valua - tion of an otherwise attractive asset. This flexibility in extending the life of a high-quality asset allows the GP a potential opportunity of realising greater value over an extended timeframe. From the perspective of an LP, there is optionality to either elect to roll their hold- ings into the continuation vehicle or realise immediate liquidity by selling their holdings, thereby allowing LPs
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