USA – CALIFORNIA Trends and Developments Contributed by: Derek Liu, Aarthi Belani and Lawrence Lee, Baker McKenzie
to potentially align their portfolio strategies with the overall investment mandate. 2024 saw an exponential growth of continuation funds as LPs increasingly accepted continuation vehicles as an alternative to traditional exits, with approximately 127 exits to continuation funds in 2024. With approxi- mately 29 exits to continuation funds in Q1 2025 and another 41 exits in Q2 2025, the activity related to continuation funds in 2025 slightly outpaced the first two quarters of 2024, and continuation fund-related exits in 2025 are likely to exceed 2024 overall. Addi- tionally, multi-asset continuation funds saw a decline in total activity in 2024 relative to single-asset con- tinuation funds, comprising approximately 43% in 2024 compared with 54% in 2023. Although there has been an overall shift towards single-asset con- tinuation funds, multi-asset funds remain a significant portion of the GP-led secondary market. Furthermore, while buyouts continue to be the predominant asset class for these types of transactions, there has been an uptick in other strategies such as venture capital, GP-led credit market and energy/infrastructure. Corporate carve-outs and take-privates Following a trend that started in Q4 of 2021, private equity capital allocators continued to pursue corpo- rate carve-outs and divestitures from larger organi- sations in 2024. Such trends have gained a foothold in the market due to an increased focus on balance sheets amidst an environment of moving interest rates, shifting tariff policies and general market ebbs and flows. During a time of geopolitical tension and economic uncertainty, these transactions poten- tially provide advantages for both buyer and seller. For buyers, carve-outs often provide mature assets with proven financial histories. For sellers, the deal proceeds can be used to invest in higher conviction investments or to pay off debt. Additionally, carve-out transactions provide an opportunity for sponsors to divest non-core or non-strategic business divisions, thereby streamlining operations. These transactions continued to play a prominent role in deal activity, particularly in the middle market, accounting for approximately 11% of the deal value in 2025. As we continue further into 2025, analysts pro-
ject even stronger carve-out activity as policies gain more clarity and markets stabilise. Take-privates have also become an attractive route to value creation and will be an interesting trend to follow in 2026. There have been a few notable take-private transactions in 2025 that have contributed to the over- all increase in deal value discussed in the previous sections of this article. Take-privates require spon- sors to navigate several layers of complexity, includ- ing regulatory, reporting and corporate governance requirements, but can be a viable alternative when public market valuations do not necessarily reflect the growth potential of a business. Taking a public com- pany private may allow the business to focus on long- term strategic goals rather than potentially significant pressures on quarterly results. These transactions also potentially lead to a reduction in administrative costs, as public companies often incur significant fees related to stringent reporting requirements. Fundraising efforts and capital allocation Another trend that will be interesting to watch unfold is whether the momentum for fundraising efforts will return in earnest in 2026. In 2024, buyout funds raised 23% less capital globally compared to 2023. A con- tributing factor to this trend was the overall decline in exit activity in 2024 and 2025, which resulted in fewer distributions made to LPs. As a response to this slowdown, LPs tightened and cut back on their capi- tal allocations. Most of the capital allocations were reserved for the largest, most experienced funds with long-standing track records for strong performance. Strategic divestitures to unlock value Macroeconomic uncertainties in 2025 have led cor- porations to divest their businesses. Such divesti- tures help companies focus resources on their most profitable ventures. For instance, in April 2025, ABB announced that it would launch a process to spin-off its Robotics division. Following the spin-off of ABB Robotics, ABB would continue to focus building on its position as an electrification and automation lead- er. Despite USD2.3 billion in revenue in 2024, ABB Robotics experienced setbacks due to decreased demand in the automotive industry. This spin-off dem- onstrates how companies can optimise their portfolios by divesting business and unlock greater shareholder
348 CHAMBERS.COM
Powered by FlippingBook