Press release

Bain & Company’s inaugural M&A report: Industry disruption changed the nature of M&A and spiked strategic deal value to a near-record $3.4 trillion

Bain & Company’s inaugural M&A report: Industry disruption changed the nature of M&A and spiked strategic deal value to a near-record $3.4 trillion

According to the research, scope deals outnumbered scale deals for the first time ever, proving to be an antidote to the dual challenges of disruption and the growth imperative

  • January 23, 2019
  • min read

Press release

Bain & Company’s inaugural M&A report: Industry disruption changed the nature of M&A and spiked strategic deal value to a near-record $3.4 trillion

New York – Jan. 23, 2019 – Technology, superabundant capital and government intervention made 2018 the year of disruption, which came at a time when most companies were already struggling to meet or exceed growth expectations.  In this context, M&A proved to be a great enabler in responding to the disruption and growth challenges. 

The year 2018 delivered a near-record $3.4 trillion in strategic deal value – a rebound from $2.9 trillion the year prior –and changed the very nature of M&A in the process.  The spike was driven by momentum in the first half of the year, despite a slow-down in the fourth quarter.

Notably, some of the largest deals that hit the headlines last year were not scale deals, intended to make companies bigger or generate cost synergies.  Rather, they focused on acquiring new capabilities or opening up new product or service segments (scope deals).  According to Bain & Company, these scope deals outnumbered scale deals for the first time ever in 2018 and  represent 51 percent of all strategic deals larger than a billion in deal value – possibly the biggest development in the M&A industry in the last decade.  These are the top-level findings from Bain & Company’s inaugural M&A report, M&A In Disruption.

“The sheer momentum behind scope deals over the last three years is profound,” said Les Baird, head of Bain & Company’s global M&A practice.  “Last year, most deals were not predicated on the basis of ‘scale.’  Rather, they were done to expand scope.  This is either a sign of over-confidence, or a huge change in the executive mindset about the source and value of future growth. We think it is the latter, and we expect it to continue largely because more and more executives are using M&A to solve their historic ‘do I build it or do I buy it?’ dilemma when it comes to investing in growth initiatives and capability building.” 

Within scope deals, the most dramatic growth has been in those aimed at acquiring new capabilities.  Capability M&A has increased to represent roughly 15 percent of all strategic deals larger than a billion in deal value in 2018, compared to two percent in 2015. A four-fold increase in corporate venture capital investing since 2013 suggests that this trend is even stronger at the smaller end of the deal spectrum, where the majority of capability deals are made. 

According to the report, almost one-third of capability deals involved the outright acquisition of a capability to target digital opportunities such as autonomous cars, e-commerce, Internet of Things (IoT), digital manufacturing, digital security, digital content/marketing/advertising and digital healthcare. Technology stalwarts are not the only ones buying these capabilities. Companies from other industries that are experiencing fast digital disruption (and opportunities) – automotive, consumer products, healthcare, retail, media, telecom, and even utilities – are also actively pursuing capability deals.

Other Key Trends in 2018

In addition to the acceleration of scope deals, Bain & Company’s report identifies four other key M&A trends in 2018 that will continue to change the way executives make M&A decisions:

Financial sponsors, such as private equity firms, behave like strategic buyers.  In their search for good investments, sponsors are using a wider range of approaches to invest in larger deals and capture the benefits of consolidation through add-on deals. When viewed collectively, these approaches make some sponsors look more like strategic buyers.  While the vast majority of M&A – about 83 percent by value and 90 percent by volume – is still done by strategic buyers, Bain & Company’s work with clients reveals that sponsors, mostly private equity companies, are turning up more and more in large deals competing with the traditional corporate buyers. 

Activists play the M&A card to great effect. Activists are demanding more M&A, largely because M&A-related activism consistently produces the highest returns of any form of activist thesis (versus corporate governance, executive compensation, business strategy or others).  Between January and October 2018, activists targeted more than 800 companies, and more than 20 percent of these campaigns were explicitly based on an M&A thesis.  While most activity is in the U.S., this movement is spreading globally. Companies based in Europe and Asia are the targets of roughly 35 percent of all M&A-related activist campaigns.

Governments intervene on grounds of national interest.  Governments around the world are increasingly challenging attempts at large cross-regional business combinations on grounds of national interest and security.  Despite the rising scrutiny, 91 percent of all announced deals still end up closing last year. However, executives will need to respond with more proactive planning for remedies and regulator engagement in the future.

Cross-regional deal making loses momentum.  Despite an increase in deal value last year, versus 2017, deal volumes continued to decline.  They were down by about 20 percent, brought on by geo-political uncertainty, the threat of rising trade tariffs, and declining structural arbitrage.  Overall, 2016 marked the high point for cross-regional M&A.  Deal flow cooled substantially in 2017 and partially recovered in 2018 on the back of a few megadeals.

Implications for Dealmakers

Bain & Company has worked on more than 1,500 M&A projects with both strategic buyers and sponsors in the last year alone and has identified what the best are doing to succeed.  This includes:

  • Retooling the approach to due diligence.
  • Evolving how to think about combined business operating models.
  • Developing different ways to approach business processes and systems integration. 

Further, the firm’s extensive research over the last two decades has uncovered an enduring truth: a repeatable M&A capability, developed through consistent M&A activity over economic cycles, contributes to higher shareholder returns. This finding holds up year after year, across industries. Deal success and failure is more a matter of cumulative experience and capability in doing deals, and less a function of standalone deal circumstances. 

Based on an analysis of different M&A strategies employed by a universe of 1,729 publically traded companies from around the world and subsequent returns to shareholders, Bain & Company found those that acquire frequently tend to outperform the average company on total shareholder returns (7.7 percent annual total shareholder returns, or TSR, vs. an average of 6.9 percent).  Companies that not only acquire frequently but also develop the capabilities to undertake larger deals do even better. These companies, called “Mountain Climbers,” deliver 9.2 annual TSR.

“Building a repeatable capability for M&A is essential, but it’s not easy,” said Peter Horsley, a partner in Bain & Company’s European M&A practice.  “In particular, the leap from scale deals to scope deals is a large one. Companies will need to adapt and modify their diligence and integration playbooks, as they pursue scope deals for growth and, potentially, more transformative capability-driven scope deals.”

Editor's Note: To arrange an interview, contact Katie Ware at or +1 646 562 8107

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