Mergers and acquisitions: how M&A deals work

In 2016, Microsoft paid $26.2 billion to acquire LinkedIn. By fiscal year 2023, seven years after the deal closed, the platform crossed $15 billion in annual revenue for the first time, deeply embedded across the Microsoft 365 ecosystem. A clear success. But for every LinkedIn, there is an AOL-Time Warner: in 2000, a deal announced at roughly $160 billion in combined valuation, the largest of its era, unraveled into one of the most spectacular value-destruction episodes in corporate history, ending in a quiet split a decade later.

That paradox sits at the heart of mergers and acquisitions. Every year, thousands of executives announce combinations designed to create value, sharpen competitive positioning, or accelerate growth. Yet the most rigorous studies converge on a sobering conclusion: most deals fail to deliver on their promises. Bain estimates that roughly 60% of transactions fall short of their internal targets. KPMG, tracking relative total shareholder return across more than 3,000 public deals, arrives at a similar figure. McKinsey, applying broader strategic criteria, cites an order of magnitude around 70%. These three numbers measure different things, with different samples and different time horizons, but they all point in the same direction.

Why does an operation explicitly designed to create value so often destroy it instead? What separates a transformative acquisition from a multi-billion-dollar strategic mistake? This Fundamental gives you the tools to understand how M&A actually works, from the initial decision through post-merger integration.