Why 75% of M&A destroys value, and it’s not the strategy

Brittany Skoda has worked on more than 75 transactions at Morgan Stanley, including deals involving Amazon, Dropbox, Google, and Tesla. When she looks at the exposed wiring behind failed acquisitions, she rarely sees bad strategy. Instead, she sees two people in a conference room on a Monday morning who were never given a reason to work together.

That distinction, between a deal that was a bad idea and a deal that was a good idea nobody could execute, is the gap where most M&A value gets destroyed. And it’s a gap that almost nobody assesses before the LOI is signed.

The strategy was usually fine

Between 70% and 75% of M&A transactions fail to create value. That number comes from an analysis of more than 40,000 deals by NYU finance professor Baruch Lev. It has been cited so often it’s become background noise. The popular explanation for this statistic is “culture clash,” but that obscures more than it reveals.

“It’s not that all of the deals are value destructive because they’re bad ideas. There’s probably a handful of those… And then I do think a big bucket would be just couldn’t integrate it.” — Brittany Skoda, Global Head of Software Banking, Morgan Stanley

Skoda’s reframe doesn’t dispute the failure rate as much as it disaggregates it. In her experience across decades of software M&A, the strategic logic behind most acquisitions holds up to scrutiny. The acquirer identified a real capability gap, the target filled it, and the market rationale was sound. What collapsed was the process of turning two separate organizations into one that functions. In other words, the execution.

For PE sponsors, this distinction is more than academic. If the problem were bad strategy, the fix would be better deal selection. But if the strategy was sound and the integration still failed, the failure point is predictable. It’s assessable, and it’s assessable before the deal closes.

What are the two questions nobody asks before signing?

Most due diligence checklists are thorough on financials, legal exposure, and commercial performance, but are thin on one question: can these two organizations actually become one?

Skoda frames this as two tests that should happen before signing:

Can these two specific teams actually do this together? Not in theory, and not based on org chart alignment. Can the actual human beings who will run the combined operation collaborate? Do they have working relationships, shared context, or at minimum a mutual understanding of what the integration demands?

What does this mean from the customer’s perspective? Skoda cuts past the spreadsheet abstraction with a blunter question: “What is this going to mean from my customer lens?” If the integration disrupts customer relationships, the financial model is fiction regardless of what the spreadsheet says.

These questions don’t appear on standard DD checklists because financial, legal, and commercial diligence dominate the process. Integration capability is assumed, not assessed. And that assumption is where the value destruction begins.

How do middle-manager incentives affect post-merger integration?

The conventional wisdom says founder rollover equity solves the alignment problem. The founders have skin in the game, so they’ll make the integration work.

Skoda identifies a layer beneath that logic:

“Even with good intentions, if the people that are actually on the ground having to have a conversation of how we’re going to get our team to work together, if there’s not a good incentive for those two people, it’s probably going to be pretty hard on the other side.” — Brittany Skoda, Global Head of Software Banking, Morgan Stanley

Integration fails when the people running it have no skin in the game. Founders agree to the deal, but department heads, who were often excluded from the negotiations, are the ones who have to live with the fallout. If the restructuring threatens their headcount and their bonuses are tied to their own team’s performance, the merger may be dead on arrival.

At this level, good incentive design means more than simple retention bonuses. To drive actual results, you have to tie compensation to specific integration metrics like shared customer handoff completion rates, combined pipeline targets, or cross-team project delivery. Without those benchmarks, the people doing the work will naturally default to the priorities of their original silos.

When that happens, the strategy on paper stops mattering.

“All M&A isn’t accretive, and that has been proven time and time again through data. Sometimes deals can actually look good and be good on paper, but then if the integration is not successful, you have nothing.” — Brittany Skoda, Global Head of Software Banking, Morgan Stanley

This matters more for buy-and-build than any other strategy

Nearly three-quarters of US PE buyouts in 2024 were add-on acquisitions, according to Bain’s Global Private Equity Report. For the average mid-market platform company, integration is a recurring operational capability that happens three, four, or five times a year.

Why does this change the math? Because a platform running a buy-and-build strategy can’t afford to treat each add-on integration as a bespoke consulting engagement. The integration playbook has to be repeatable. That means a standardized pre-deal assessment, a tested incentive framework, and a clear-eyed view of which relationship assets need to survive each transaction.

Dealflow isn’t the constraint for most buy-and-build sponsors. M&A sourcing has been systematized, and pipeline management tools exist. But the ability to absorb a new company without breaking the platform is the binding constraint on platform scaling. The firms that treat integration assessment as a pre-deal workflow rather than a post-close scramble are the ones that compound value across a portfolio.

What relationship assets are at risk during integration?

There’s a layer of an acquisition that rarely gets mapped: the relationship infrastructure. A key customer account may be single-threaded to one departing executive. A critical supplier relationship may rest entirely on the personal trust of someone whose role is being eliminated. And the talent connections that span both organizations can break the moment either side’s team turns over.

Contact records in a traditional CRM don't answer these questions. They capture names and activity logs, not relationship strength, communication frequency, or the multi-threaded connections across teams that hold a business together during disruption.

A relationship-asset audit before close maps the warm paths, the key customer contacts, and the talent whose departure would damage the combined entity. The acquirer that can see the relationship threads running through a target company is the acquirer that can protect them. The acquirer relying on a contact list and a spreadsheet of org-chart names is guessing.

A pre-deal integration checklist for PE sponsors

Financial diligence won’t tell you whether two teams can work together on a Monday morning. Add these integration-specific questions to your PE due diligence checklist before signing the next add-on:

Integration capability. Has the platform successfully integrated an acquisition before? Who owns the process? What’s their current bandwidth, and are they already mid-integration on something else?

"You do need the right team in place on your side. And sometimes we work with companies and they just really don't have the resources to be able to operationalize this transaction... if we were to ingest an X-size company, can we handle it?” — Brittany Skoda, Global Head of Software Banking, Morgan Stanley

Team compatibility. Can you name the two to three people on each side who will run the day-to-day integration? Have they met? Do they have any shared context or working relationship?

Middle-manager incentive design. Are the people running the integration on the ground specifically incentivized to collaborate? Retention only keeps them in the building. Collaboration metrics keep them working together, and the two are not the same.

Customer-impact mapping. Which customers overlap between the two entities? Which customer relationships are single-threaded to someone whose role changes in the integration? What’s the handoff plan?

Relationship-asset audit. What warm paths, talent connections, and supplier relationships need to survive the transition? Where does that knowledge live today, in a system or in someone’s head?

Timeline reality check. Is the integration plan based on the platform’s prior experience, or on aspirational assumptions? How long did the last integration actually take, start to finish?

Firms like Motive Partners use Affinity to keep track of the relationships running through 65,000+ organizations, the kind of visibility that turns a due diligence checklist into an integration risk map. See how it works.

For a complete financial and legal checklist, read The complete due diligence checklist for private equity firms.

Frequently asked questions

Why do most M&A deals fail?

Between 70% and 75% of M&A transactions fail to create value, according to a study of 40,000 deals. While bad strategic logic accounts for some failures, a larger share are deals where the strategy was sound but the post-merger integration was not. The execution gap, specifically the inability to combine two organizations into one that functions, is the primary failure mode.

What is the difference between M&A strategy failure and integration failure?

Strategy failure means the deal shouldn’t have happened: the market thesis was wrong, the target didn’t fill the actual capability gap, or the price was too high for any integration to justify. Integration failure means the deal made strategic sense but the combined entity couldn’t operate as one, typically because the people responsible for the integration on the ground lacked the incentive, capability, or relationships to make it work.

What should PE firms assess before signing an add-on acquisition?

Beyond standard financial and legal due diligence, PE firms should assess integration capability (has the platform done this before, and does the team have bandwidth?), team compatibility (can you name the people who will run the integration, and have they met?), middle-manager incentive design (are the operators specifically rewarded for collaboration?), and customer-impact mapping (which customer relationships are at risk during the transition?).

How do middle-manager incentives affect post-merger integration?

Founder rollover equity aligns the principals, but the integration is typically run by department heads and operational managers who weren’t part of the deal negotiation. If these individuals aren’t specifically incentivized to collaborate through metrics tied to integration milestones, they default to protecting their own team’s resources and status. The result is parallel organizations that never combine.

What is a pre-deal integration diligence checklist?

A pre-deal integration diligence checklist extends standard DD to include: integration capability assessment, team compatibility evaluation, middle-manager incentive design, customer-impact mapping, relationship-asset audit, and timeline reality checks based on prior integration experience. It is designed for PE sponsors running buy-and-build strategies where integration is a recurring operational demand, not a one-time event.