Experience makes the difference between successfully closing M&A deals and either missing opportunities or making poor choices. In BCG’s decades of supporting and studying transactions, we have found that—in the long run—companies that regularly engage in deals create more value and have higher success rates. Overall, they create superior returns, whereas less-experienced companies tend to destroy value. (See Exhibit 1.)

What gives experienced companies their edge? They understand the fundamental importance of strong executive ownership and strategic guidance over M&A priorities. Critically, they also recognize the essential role of a dedicated and capable M&A organization to support their transaction activities. Operating with a clear mandate and a well-structured, end-to-end process, the M&A organization collaborates with business units to identify targets and execute deals while expertly navigating a minefield of risks.

In a large-scale effort, BCG collaborated with global dealmakers to study the common pitfalls and success factors involved in setting up M&A organizations. The study included a survey of senior leaders from various regions, industries, and functions. (See “About the Survey.”)

The study’s findings indicate that making the right choices in several key areas is essential for building effective M&A organizations. Because each organization is unique, companies must tailor their design choices across these topics on the basis of a detailed understanding of the pros and cons. Companies that succeed will create top-notch teams that are prepared to act decisively and effectively throughout the life cycle of each deal.

What Are the Common Challenges?

Understanding the common pain points that M&A professionals face in their daily work is crucial to designing effective organizational structures. Survey respondents highlighted several obstacles that many of them have encountered. (See Exhibit 2.)

The most frequently cited challenge is a lack of promising targets: 47% of respondents mentioned shortcomings in their organization’s target search process. Nearly as many (46%) pointed to unduly prolonged processes during transaction execution. And 43% noted the absence of a clearly defined growth strategy or described their company’s approach as too opportunistic.

The scope of the M&A organization’s perceived responsibilities throughout the deal process is another significant issue. Survey respondents see themselves as having a clear mandate to develop strategic rationales, conduct negotiations, provide financial analyses, perform valuations, and manage processes and programs. (See Exhibit 3.) But relatively few respondents see themselves as internal advisors, integration planners, and communicators. For maximum effectiveness, the deal team should be deeply involved in all of these areas.

Our discussions with successful dealmakers reinforce the importance of ensuring that the M&A organization have a broader set of capabilities. (See “Lessons From Maersk’s M&A-Driven Transformation.”)

Building an Effective M&A Organization

Building an effective M&A capability involves tailoring various design options to the company’s specific goals. There are four key areas to consider: governance structure, functional structure and team size, collaboration models, and processes and tools. Companies can consider a set of questions to guide their choices among the available options. (See “Questions to Guide Design Decisions.”)

Governance Structure

An M&A organization’s governance structure should align with the company’s strategic objectives and business environment. The top-down governance approach emphasizes a structured and hierarchical decision-making process in which directives flow from senior executives to the operational teams. It is suitable for organizations operating in traditional and less dynamic industries. The primary advantages of this structure are clear guidance and efficiency, leveraging of executive expertise, and structured communication. However, it may also limit flexibility and slow decision making.

The 2024 M&A Report

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Bottom-up governance, in contrast, encourages more ideation and innovation from lower organizational levels. Because this approach facilitates flexibility, innovation, and faster decision making, it is popular in dynamic and innovative industries where agility is crucial. It is also widely employed by large conglomerates that have diverse, unrelated business units. Potential challenges of this governance structure include strategic misalignment among organizational levels and lack of transparency.

In any governance structure, decision-making bodies play important supporting roles. Depending on the region, the board of directors or C-level executives approve and update the investment strategy, allocate capital, and define group policies. These leaders also develop processes and responsibilities related to M&A activities, ensuring strategy implementation across the organization. In an overlapping role, the investment committee prioritizes and recommends investment decisions in line with strategic objectives, challenges deal teams (for example, by verifying assumptions and prioritizing additional analysis), and contributes to M&A strategy execution.

Functional Structure and Team Size

The structure of the M&A function must align with the company's overall strategy, ensure effective integration of acquired entities, and support seamless operations. Several dimensions impact this structure:

• Level of M&A Function. The M&A function’s position within the corporate hierarchy and its reporting structure are crucial. Having the function report directly to C-level executives ensures top-level attention and strategic alignment. On the other hand, integrating the function into another department enhances coordination and resource sharing.
• Allocation of Responsibilities. The distribution of M&A responsibilities among executive roles affects the function’s focus and effectiveness. Assigning responsibility to the CEO ensures strong strategic alignment, whereas placing the CFO at the helm emphasizes financial discipline. Leadership by the chief operating officer or chief strategy officer stresses operational efficiency or strategic execution, respectively.
• Degree of Centralization. A centralized M&A team provides strong cohesion and quick decision making but may give short shrift to business-unit-specific insights. In contrast, a divisional team optimizes capital allocation and supports specialized tasks but requires careful coordination. Integrating the M&A team into a business unit helps align it with business strategies but may raise issues with adherence to enterprise-level strategy.
• Team Size and Resources. The scope of an M&A organization’s activities affects its required team size and skill level. After assessing the tradeoffs between utilization, flexibility, and costs, companies may choose not to build subject matter expertise in certain functions and business areas within the M&A organization. To access needed expertise, companies must establish strong interfaces that promote effective collaboration between the M&A organization and other departments and business units.