The COVID-19 pandemic affected nearly every industry. From reductions in revenue to staff challenges to supply chain challenges, the pandemic had an adverse impact on economies worldwide.
For the private equity industry, COVID-19 had its own unique challenges. Below, London private equity leader Gary McGaghey provides his perspective on private equity and the pandemic.
The widespread economic devastation wrought by COVID-19 had some experts believing that private equity would be hard hit. A survey conducted by PwC at the height of the pandemic showed that finance leaders worried that the pandemic would have a long-term impact on financials, including future results, liquidity and the availability of capital resources. Leaders also were concerned about a potential worldwide recession and a reduction in workforce productivity.
For Gary McGaghey, group chief financial officer at Williams Lea Tag, the pandemic was a time to look closely at how your business operated and make smart, decisive choices. McGaghey had just joined the firm in September 2019 after several decades of financial leadership roles at leading companies.
“It was probably a speed bump, although, at the time, there was quite a bit of panic around, ‘How bad are things going to get,’” McGaghey said.
The pandemic forced private equity firms to look closely at key economic indicators, starting with cash flow. It meant asking hard questions.
“How do you bunker down and sustain this business through a really tortured time for six to 12 months,” McGaghey recalled. “We had to do a lot of scenario analysis and look at our business model.”
That analysis included cost reductions that would factor in a shrinking of the business as a whole. By taking a lot of costs out, COVID-19 was “a bit of a shot in the arm on certain things,” he said.
The business took a close look at what it was planning to do and shifted, delaying some things and accelerating others.
“We came out of COVID with a more profitable business,” McGaghey said. “We shrunk slightly, not materially, but the profit improved. We took costs out of the business, and then we powered on.”
The changes were dramatic in some respects, McGaghey said.
“We changed quite fundamentally like most businesses were (changing). Working off-site became a big part of our business. And our business is a people business, by the way, so it’s a very big change,” he said. “We had to make a lot of quick changes to the culture and how we operate.”
An Industry Dips and Rebounds
The start of the pandemic had many predicting doom and gloom for the global private equity industry. While international markets fell precipitously in April and May 2020, the value of deals and exits sprung back in the third quarter.
In fact, an analysis by Invest Europe showed that private equity played a crucial role in job growth during the pandemic. The report indicated that 12,633 net jobs created in 2019 and 2020 in the United Kingdom were due to companies backed by private equity and venture capital.
Overall, private equity and venture capital-funded companies accounted for 1.8 million jobs in 2020, or 5.6 per cent of the UK workforce.
Gary McGaghey’s four ways for new private equity CFOs to prosper
Rethinking How Private Equity Works
One major change for private equity firms was the ability to be on-site, visiting and evaluating businesses that were either being considered for investment or already clients. While potential clients may look great on paper, it’s always a good idea to do an in-person visit to get a sense of how a company operates daily.
It also put the onus on companies to have their documentation in order to avoid having deals delayed or falling through. While virtual meeting technology allowed the bulk of business to operate despite the pandemic, for many aspects of the work, McGaghey noted that the pandemic required drastic changes.
McGaghey has had extensive work experience in Europe, Asia, Africa and the United States. That experience was helpful in addressing some unique challenges.
With a large offshore centre in India, Williams Lea Tag had to consider operations on two continents. The London private equity company could quickly shift its home office employees to at-home work.
However, many of its Indian employees did not have internet access at home. So the firm sent computers and set up communications networks to allow those employees to work safely.
“You have to completely change your business model, which we did very quickly and successfully,” he said. “It’s now stuck; it’s completely changed the (business). We haven’t gone back. It’s a much more agile model.”
Gary McGaghey believes that work in private equity, like in many sectors, is forever changed. Take working from home, for example. Pre-pandemic, no employees were working remotely, and that number grew to 80 per cent during the pandemic. Today, it’s closer to 60 per cent and “it’s never going to go back below that.”
Gary McGaghey Brings Experienced Financial Leadership
For McGaghey, the pandemic created new challenges in a career marked by success. After earning an undergraduate degree at the University of Natal, he pursued postgraduate work at the University of South Africa, where he graduated with honours. He began his career in retail food and household products, working as a chief operating officer, chief financial officer and vice president of logistics.
In 2002, he joined Unilever South Africa as chief financial officer. He later served as global mergers and acquisitions director at Unilever, interim CEO of Unilever South Africa and chief financial officer of Unilever.
In May 2017, he joined Nelsons as a chief financial officer before joining Williams Lea Tag in late 2019.
McGaghey is renowned for his business acumen, frequently advising other financial leaders on the role CFOs play in a company’s growth. As the challenges of the pandemic unfolded, he once again demonstrated the acumen that has driven him and his businesses to further success.
