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.