Doing the right deals - M&A

Why capabilities are more important than ever for M&A

Companies adapting to a COVID-changed world are rushing to reconfigure their businesses, fuelling M&A activity. But PwC research has shown that 53% of corporate acquirers underperformed their industry peers.

As leaders aim to forge new equations for growth by pursuing acquisitions, what can they do to ensure their investments create sustained value?

To answer this question, PwC examined 800 deals, including the 50 largest acquisitions across 16 different sectors completed over the past decade. 

The results reveal one factor that plays a pivotal role in successful M&A activities—a capabilities fit between buyer and target—plus five steps leaders can take to integrate capabilities considerations into impactful deal-making.

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What is a ‘capabilities fit’ and why does it matter?

Deal success versus capabilities fit and stated strategic intent Performance above or below local market index, measured in annual TSR percentage points
  • Capability access deals 3.1
  • Diversifi­cation deals 0.1
  • Product or category adjacency deals -0.4
  • Consolid­ation deals -1.2
  • Geographic adjacency deals -2.1
  • Leverage deals 3.9
  • Enhance­ment deals 2.5
  • Limited-fit deals -10.9

Deal performance vs. stated strategic intent

Deal performance vs. capabilities fit

Leading local market index

Source: Strategy&

Whether a company is aiming to consolidate, diversify or enter a new market, there’s one element that has been shown to differentiate a successful deal: a capabilities fit between the buyer and the target. 

Capabilities—or a set of strengths that creates unique value—differ greatly between companies. Thus, when an acquirer is pursuing M&A, it’s important to ensure that the strengths of both players complement each other.

Indeed, our study has shown that the strategic intent of a deal has little to no impact on value creation. What generates value—and a positive total shareholder return (TSR)—is a capabilities fit that allows companies to leverage or enhance their capabilities. The alternative? A pitfall we call a limited-fit deal that can result in a significant loss in TSR following a transaction.


Types of deals by industry

The frequency of capabilities-driven deals (enhancement and leverage) differs widely across industries—from 38% of deals in oil and gas to 92% in pharma and life sciences. Yet despite the variance, a positive capabilities premium was found in all 16 industries we analysed.


The prevalence of deals by industry

Share of deals by stated strategic intent (%)

Share of deals by capabilities fit (%)

Capability access

Product/category adjacency

Geographic adjacency



Limited fit



Source: Strategy&
Number of deals by Stated Deal Intent Number of deals by Capabilities Fit
Sector Capability Access Product/Category Adjacency Geographic Adjacency Consolidation Diversification Limited Fit Enhancement Leverage
Pharma and life sciences 12 48 8 32 0 8 30 62
Health services 12 20 8 60 0 10 28 62
Telecomm­unications 30 24 20 24 2 10 48 42
Automotive 20 40 18 20 2 14 46 40
Power and utilities 4 16 44 36 0 16 28 56
Technology 26 34 8 28 4 16 42 42
Industrials 10 48 8 28 6 18 46 36
Chemicals 10 46 20 20 4 24 34 42
Consumer goods 4 42 22 30 2 26 14 60
Metals and mining 6 14 28 50 2 30 18 52
Insurance 4 28 22 44 2 32 38 30
Retail 2 38 18 34 8 32 12 56
Banking, capital markets, asset and wealth management 12 12 26 48 2 44 46 10
Entertainment and media 28 18 20 30 4 44 38 18
Transport­ation and logistics 8 16 38 36 2 50 22 28
Oil and gas 14 12 34 36 4 62 18 20

How do different types of deals create value?

Prevalent in industries experiencing disruption, capabilities enhancement deals bring an acquirer capabilities it doesn’t already have, often enabling it to thrive amid a changing competitive landscape. Enhancement deals generate an annual TSR premium of 2.5% points above local market indices and represent 32% of the deals tracked in our study.

When an acquirer buys a company that it believes will be a good fit with its existing capabilities, it’s called a capabilities leverage deal. This type of deal leverages the buyer’s capabilities to strengthen the target and results in an average annual TSR of 3.9% points above local market indices—the highest of our three categories. Forty-one percent of the deals examined in our study were leverage deals.

Representing 27% of the deals analysed in our study, limited-fit deals performed the worst of the three categories. Such deals occur when the acquirer largely ignores capabilities and the transaction doesn’t add to or leverage the acquiring company’s capabilities in any major way. Limited-fit deals have a negative annual TSR compared to local market indices—on average -10.9% points—meaning they typically destroy value compared with the market.

How we can help: Strategy&’s portfolio optimisation

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Portfolio Optimisation

As part of the PwC network, Strategy& helps clients solve their issues from strategy through to execution. We do that by combining our strategy consulting expertise with the vast capabilities of the network, to help you move your business forward with confidence.

Strategy&’s data-driven community of solvers has found strong evidence that deals leveraging or enhancing a buyer’s key strengths produce significantly better results than those lacking a good capabilities fit. And when it comes time to revamp a portfolio, too many companies pursue deals to grow in size, rather than aligning their M&A strategy with their capabilities. We can help. 

Learn more about how you can optimise your portfolio

Five steps to maximise the value from deals

Our analysis of 800 large deals shows the premium that arises for companies that apply a capabilities lens in their M&A activities. How can your company emulate these companies’ success? Where do you start if capabilities fit has not been a key driver of your deal-making?


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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

Dr. Peter Gassmann

Dr. Peter Gassmann

Global Leader, Strategy&

Gregory Nahass

Gregory Nahass

Partner, PwC United States