Gary McGaghey, the CFO of Williams Lea Tag, is a private equities expert who has worked for multinational organizations. He has been instrumental in the success of many companies around the globe. In a recent interview, he shared his views on market trends in the private equity sector. Here is what he had to say.
His views on the future of Private Equity (PE)
Private equity firms will continue to enjoy an increased momentum throughout 2021, according to Gary McGaghey. He says he has seen 2,346 PE deals in the first Q1 of 2021, a 21.9% increase compared to the same period last year.
The current market trend results from the historically low-interest rates and a record fundraising. PE fundraising in the U.S. alone is at an all-time high at $150.1 billion. Additionally, we have also witnessed another trend where PE professionals from established firms set up funds, which has led to an increase in deployable capital.
His Views on PE deals outlook
The increased competition for conventional PE deals and the pressure for returns have forced PE firms to evolve. Gary McGaghey mentioned that they have seen them diversify to become alternative asset managers with holdings in several asset classes.
For instance, from 2019-2020, they saw the top five largest alternative investment players in the U.S. drive the net annual new money flows by 5-15%. In the same period, the conventional active assets managers experienced negative flows.
As we go forward, Gary McGaghey says that the market can expect more deal activities as founders and PE funds rush to capitalize on tax law uncertainty. He also said he anticipates a change of strategy where environmental, social, and governance (ESG) considerations become part of the deal-making for portfolio companies. That means PE firms will do a thorough ESG risks analysis across their portfolio and carefully select their targets.
Key deal drivers
Gary McGaghey said that we should expect to see more deals. Gary further added that his recent analysis shows the increase in private equity deals is driven by:
- decrease in popularity of Special Purpose Acquisition Companies (SPACs) as a source of capital.
- investors commitment to purpose and talent for PE firms
- PE firms are agents of change when it comes to value creation.