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Want an M&A win? Make sure it’s a capabilities fit

A PwC study of 800 deals reveals that successful ones are most often driven by the specific strengths—like tools, technology and skills—that create value

The Leadership Agenda

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Performance above or below local market index, measured in annual TSR percentage points

3.3
Capability-driven deals (the buyer gets or brings capabilities)
Leading local market index
-10.9
Limited-fit deals (the buyer largely ignores capabilities)

How do leaders make M&A deals work? How do they ensure that the resources they invest—often at a premium to market value—produce sustained value and shareholder return? Focus intently on capabilities. A PwC study of 800 deals, including the 50 largest acquisitions across 16 sectors in the past decade, shows that a prime differentiating factor in deals is the same factor that sets successful companies apart: a strategy rooted in capabilities. These are the specific combinations of processes, tools, technologies, skills and behaviours that allow companies to deliver unique value to their customers. The study found that capabilities-driven deals were more successful, outperforming the local market index for total shareholder returns (TSR) by an average of 3.3 percentage points. By contrast, limited-fit deals underperformed the local market index by 10.9 percentage points per year. The upshot? If a merger or acquisition doesn’t fit from a capabilities standpoint, protect value and management bandwidth by exiting it quickly, rather than trying to turn it around. Likewise, if there is a gap in capabilities, act now to fill it, or you will be left behind in the race to win.

Find out how to optimise your portfolio and do better deals

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Contact us

Alastair Rimmer

Alastair Rimmer

Global Deals Strategy Leader, Partner, PwC United Kingdom

Hein Marais

Hein Marais

Global Value Creation Leader, Partner, PwC United Kingdom

Tel: +44 (0)7740 064729

Will  Jackson-Moore

Will Jackson-Moore

Global ESG Leader, Partner, PwC United Kingdom

Tel: +44 07710157908

Gregory Nahass

Gregory Nahass

Partner, PwC United States