While the Covid-19 pandemic has clearly led to a level of disruption hitherto unseen in either the business or social worlds, the deals market has been resilient, with sectors such as technology and financial services seeing real uplifts.

As we approach the first anniversary of the pandemic’s arrival in Scotland, the return to lockdown has highlighted the journey still remaining. However, unlike 2009, and the first steps of recovery from the previous year’s financial crash, liquidity is strong in the market and the prospect of a deals-led recovery can accelerate economic growth as the UK begins to recover.

Looking at the period just before the pandemic took hold, the 2020 financial year commenced with a buoyant deals market as businesses sought to benefit from record levels of corporate cash and private markets capital. The first lockdown put a halt to the vast majority of mergers and acquisitions as private equity houses assessed the impact on their portfolios, and corporates turned their focus to their own operations and moved staff to remote working.

As the UK emerged from the first lockdown in June, companies began to engage in transactions again. This was evident through heightened activity in the second half of 2020, with significant volumes across a number of sectors, including technology, financial services and energy.

Both corporate and private equity activity levels remained high throughout this period, in spite of continued uncertainty and the ongoing operational impacts experienced in response to the dynamic nature of the pandemic situation, including a significant number of plc transactions.

Despite the impact of Covid-19, at PwC we continued to see strong deal activity, both in terms of the volume of transactions and value, and we witnessed a real surge in activity in the second half.

Our teams across Scotland were involved in 38 completed deals during the year, comprising transactions from local charities to global conglomerates. We have continued adapt to remote working through enhancements in our digital capabilities and reporting style – we’ve seen a lot of businesses having to invest in doing likewise. Indeed, the acceleration of tech-enablement is one of the major trends we’re seeing – the other being the environmental, social and governance (ESG) agenda. Both have moved swiftly to the top of corporate agendas in the last couple of years, bringing about an incredible pace of change in the deals market.

Tech businesses continue to be acquired as growth opportunities in their own right, but a more significant driver is that larger players see them as must-have solutions to enable their own businesses.

Meanwhile, the ESG and wider net zero agenda has become an absolute must. If you want to be relevant in two years you will need to be delivering against an ESG agenda. The companies which are ahead here are attractive targets – those who aren’t will be left behind.

These trends – along with the continuing growth and tech disruption of the financial services industry – are the absolute accelerators here in Scotland.

In the immediate term, new variants of Covid and a return to lockdown showed us just how far we have yet to go in our battle against the pandemic. However, the vaccine rollout, and renewed funding to support businesses are causes for optimism for business owners and the wider economic recovery. It remains unclear how the wind down of government support will impact businesses. We anticipate that, across industries, small to mid-size businesses with less robust cash positions will struggle as government support dries up, presenting opportunities for private equity funds to consolidate and professionalise industry niches, as well as working alongside management teams to build value.

While the current global outlook is somewhat mixed, with overall global economic recovery expected by late 2021, the UK will see a slower recovery due to the significant role services play in our economy. Despite this, the liquidity in the market does lend itself to that deals-led recovery. We are already seeing evidence of this, with more businesses coming to the market as private owners look to exit ahead of possible tax changes as well as significant corporate activity as they seek to execute their strategies.

Jason Morris is head of deals at PwC Scotland