Why capabilities are more important than ever for M&A
examined for strategic fit and through a capabilities lens
represented in the research, from automotive to utilities
in total annual shareholder return gained by capabilities-driven deals over limited-fit deals
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.
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.
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.
|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|
|Power and utilities||4||16||44||36||0||16||28||56|
|Metals and mining||6||14||28||50||2||30||18||52|
|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|
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. At Strategy&, our 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.
Are you interested in optimising your portfolio to create lasting value? Let’s get started.
Global Value Creation Leader, Partner, PwC United Kingdom
Tel: +44 (0)7740 064729
Dr. Peter Gassmann
Global Strategy& Leader, Strategy&
Partner, PwC United States