Doing the right deals
Why capabilities are more important than ever for M&A
More than ever, companies must be clear in defining which capabilities they can leverage to succeed, and which capabilities gaps they need to fill.
As leaders aim to forge new equations for growth by pursuing acquisitions, what can they do to ensure their investments create sustained value? Why capabilities are more important than ever for M&A?
To answer these questions, PwC examined 800 deals, including the 50 largest acquisitions across 16 different sectors completed over the past decade.
According to the results, one factor plays crucial 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.
The driving forces behind value creation
Two types of deals were found to outperform the market: capabilities enhancement deals – in which the buyer acquires a target for a capability it needs – and capabilities leverage deals – in which the buyer uses its capabilities to generate value from the target.
These represent a true engine of value creation, delivering average annual TSR (=total shareholder return) that was 3.3% points above local market indices. Deals without these characteristics - limited-fit deals - had an average annual TSR of -10.9% points compared to the local market indices.
While 73% of the largest 800 deals analysed sought to combine businesses that did fit from a capabilities perspective, 27% were limited-fit deals. The analysis shows that for every dollar spent on M&A, roughly 25 cents were spent on such limited-fit deals that in many cases destroyed shareholder value.
Kauko Storbacka
