How Companies Got So Good at M&A

What 20 years in the trenches have taught us about deal success

By David Harding, Dale Stafford, and Suzanne Kumar

Copyright © 2024 Bain & Company, Inc. All rights reserved.
 How Companies Got So Good at M&A

At a Glance

` Companies did M&A deals worth more than $56 trillion over the last 20 years and are getting
much better at it.

` Frequent acquirers have a 130% advantage in shareholder returns over non-acquirers—it was
57% in 2000–2010.

` Companies have been rewarded by making scope acquisitions in addition to scale deals.

` Other factors in successful deals include more sophisticated due diligence and integration.

Let’s hop into the time machine and dial in 2004. The deal of the year was the Sears/Kmart merger.
Tech giants like Lucent and Juniper Networks were active, and lest we forget, Cingular bought AT&T
Wireless, only to be acquired by the new AT&T two years later. Like so many others, these companies
were all struggling to grow at a time when the empirical evidence clearly showed how difficult it was
to grow a world-class business organically. Yes, they knew they were taking a big risk with M&A. At
the time, most academic studies found that 70% of all mergers failed. Bain’s own surveys of executives
found that just about 60% of all deals failed to meet internal expectations.

If so many deals destroyed value, why did executives keep doing them?

This was the paradox that led us to conduct a deep dive into the factors contributing to the seemingly
rare M&A successes, the findings of which we published in Bain’s 2004 book, Mastering the Merger
(HBR Press).

The last two decades have upended that paradox to the point that now most great companies are the
by-product of M&A, and those that have mastered the art of frequently adding new businesses to their
portfolio (we call such companies “Mountain Climbers”) unequivocally perform the best.

It’s not as if M&A isn’t still risky—the landscape is littered with failures. Yet, while some companies
made difficult missteps, others learned, deal after deal, how they could substantially boost the odds
of success in their favor. To put some data behind this assertion, from 2000 to 2010 companies that
were frequent acquirers earned 57% higher shareholder returns vs. those that stayed out of the market.
Now that advantage is about 130% (see Figure 1). Sitting on the M&A sideline is generally a losing strategy.

What are the companies that are active in M&A doing differently? We’ve identified four areas of focus
that have been systematically developed by the best acquirers over the past 20 years.

They’ve broadened the bounds of M&A. In 2004, “Stick to your knitting” was the unofficial rallying
cry for M&A, as virtually all deals were aimed at building scale from a core business. And yet there

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 How Companies Got So Good at M&A

Figure 1: Frequent acquirers are gaining a performance advantage over time

10-year total shareholder returns

12.5% +96%

10.6
+130%
10.0

8.5

7.5 7.3
+57%

5.4 5.6
5.2
5.0 4.5
3.7 Frequent acquirers
3.3 (≥1 deal per year)
2.5 Infrequent
(<1 deal per year)
Inactive
0
2000–2010 2010–2020 2012–2022

Note: Total shareholder return is defined as stock price changes assuming reinvestment of cash dividends
Sources: Bain M&A Value Creation Database (2011, 2021, and 2023 studies); Capital IQ; Dealogic

were a few pioneering companies like Cisco Systems, Comcast, and Bank of America that succeeded
by buying critical capabilities and/or expanding into new geographies. The focus of M&A moved from
cost and defense to growth and offense. The strategic shift from scale to scope reflects a massive
change in the way M&A is done, and it has largely rewarded the frequent acquirers that have pursued
this strategy and thoughtfully honed their approach, learning from each deal.

They’ve become more sophisticated with due diligence. In 2004, it would have been unthinkable
to conduct a culture assessment. Now it underpins every successful deal. In 2004, companies often
relied heavily on a Quality of Earnings audit, a process that was akin to driving a car by looking in
the rearview mirror. As options like web scraping and expert networks emerged, the best acquirers
quickly made themselves authorities on the businesses they were pursuing.

They’ve done a lot more deals. Undoubtedly, the No. 1 predictor of a successful acquirer is experience.
Twenty years ago, we first demonstrated how frequent acquirers routinely outperformed infrequent
and inactive ones in shareholder returns. This was especially true of companies that bought
throughout the economic cycle. In the intervening 20 years, we have repeated this analysis and saw
the same result. Indeed, our 20-year look back found that frequent acquirers earn more than double
the returns of non-acquirers. (It does not take a lot of deals to become a frequent acquirer, at least
one per year.) Hyper-acquirers (companies that do five or more deals a year) earn even higher returns—
an additional 20% boost.

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 How Companies Got So Good at M&A

They’ve learned that big one-off deals remain risky. In Mastering the Merger, we boldly stated, “The
worst strategy a company can employ is to make a few big bets.” Those words proved true in a host of
massive deals (let’s pause and remember AOL/Time Warner)—mergers that grabbed headlines but
turned out to be utter failures. The riskiness of making big bets has stood the test of time, which is
why the best acquirers avoid it. On the other hand, frequency—how much of it you do—does matter.

Paradox resolved

The practice of M&A has come a long way. Over the past two decades, companies have done around
660,000 deals worth a total of $56 trillion—and over the last 10 years, the M&A market has visibly
expanded, reaching an all-time high in 2021. Companies are doing a lot of M&A, and we believe that
they are getting a whole lot better at it. Today, executives report that close to 70% of deals are successful.
Many are proud of their track records and willingly share what they are doing differently. Additionally,
they share how they’re preparing for continued wins as the bar for successful M&A gets higher amid
higher cost of capital for most companies and as competition for quality assets continues unabated.

Here’s what the decision makers behind some of the most successful deals say are the critical steps.

Great M&A comes from great corporate strategy. This is an area where M&A thinking has evolved
significantly. And it must continue to do so. Beyond the increasing development of growth-oriented
scope deals, executives we speak with see opportunities from geopolitical challenges (onshoring),
supply chain efficiency, decarbonization, and, dare we say it, artificial intelligence. These opportunities
have given rise to a new wave of corporate venturing and innovative partnership strategies, such as
Volkswagen’s alliances with 24M Technologies and Vulcan Energy. In effect, changing context and
ambitious strategic goals are catalyzing greater creativity in dealmaking.

Executives need to set themselves up for success by establishing a dedicated team—with an office
in the C-suite—to manage the deal process from beginning to end. Noted Mountain Climbers like
Thermo Fisher Scientific and Constellation Brands dedicate substantial resources to developing
their M&A strategies and faithfully executing them. In particular, the most successful organizations
have full-time, dedicated business development teams that are in perpetual motion to fill strategic
gaps (in assets or capabilities) through M&A and partnerships. And the leaders of these teams have a
place at the senior leadership table. Anything less than this, and the M&A efforts become reactive,
episodic, and disconnected from the financial and strategic imperatives of the enterprise.

As we noted in 2004, most poor deal outcomes could have been avoided with better diligence. This
is still true, but the toolbox for conducting corporate diligence work has been replaced. What was once
a largely spreadsheet/financial modeling activity now encompasses such things as talent and culture
assessments, customer insights, synergy benchmarks, strategic use of clean teams, and pre-integration
planning. As a result, organizations are far better prepared for Day 1. By approaching due diligence
thoughtfully, and with specific intent, management can detail a thesis that describes how they will
add value to an asset and use their access to the target’s data and leadership team to test that thesis.

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 How Companies Got So Good at M&A

By engaging IT and systems integrators in the diligence process, technology can be enabled to unlock
all types of synergy.

The art of integration has moved from rudimentary to highly sophisticated. We cringe a little when
we reread our integration advice from 20 years ago. Our theme in 2004 was to integrate where it
matters. While that is still true, the statement implies that the strategic integration decision to make
is where in your organization to integrate, function by function. It wasn’t wrong; it was just a bit naive.

Today, we help to organize and accelerate an integration by defining the approximately 20 critical
decisions that will drive value. These decisions are about how the integration is best achieved, rather
than where. Some examples of these key decisions might be: “How should we redesign our direct
sales effort to give optimal coverage to our key global accounts and optimal exposure to our complete
solution offering?” “How will incentives be redesigned to motivate our best sellers while reaching
our stretch sales goals?” or “Which enterprise resource planning (ERP) platform will be our financial
system of record, and how will we successfully sunset other platforms?”

Moreover, the integration planning and governance are architected in a way to get these decisions
before the integration steering committee quickly, with the needed facts so that the committee can
swiftly make a decision. Sure, any complex integration involves more than 20 decisions, but by focusing
on the ones that really matter, the organization can delegate the other hundreds of decisions to
trusted frontline managers.

The critical decisions will differ from deal to deal, depending on the asset in question and the strategic
objectives. As such, most successful acquirers avoid glib talk of an “integration playbook.”

Now, what to work on in the next couple of decades.

In the end, the success or failure of almost all deals also comes down to people and culture, yet this
is where companies have advanced the least. There is much more to be done as companies manage
the intersection of business aspirations and employee engagement.

Where are they falling short? Companies underinvest in communications. They underinvest in
establishing a “sponsorship spine” to ensure everyone is on board with the inevitable changes. They
underinvest in tech tools to measure employee sentiment and employee understanding. They don’t
perform retrospectives to see who stayed, who left, who got promoted, who didn’t, and why—information
that can help them hone future integrations. And many don’t make any effort to attach economic
value to their culture efforts. It may be the first thing CEOs talk about but the last thing they ask
their teams to actually do something about.

Indeed, a company’s ability to put its employees in the best position to be productive and successful
will define the winners in the next generation of business combinations.

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