Time to revisit your M&A strategy

M &A activity is down, as is private equity investment, and companies are facing a range of new geopolitical tensions. Still, there is a path to growth through M&A for those companies that maintain an active acquisition strategy, understand their capabilities, and avoid certain assets, says McKinsey Senior Partner Jake Henry. On this episode of The McKinsey Podcast, he and McKinsey Senior Partner Mieke Van Oostende join McKinsey Editorial Director Roberta Fusaro to discuss findings from McKinsey’s 2025 M&A report. They also discuss the importance of culture in M&A integrations.

In our second segment, McKinsey Senior Partner Dana Maor shares how CEOs can and should stay connected to their teams.

The McKinsey Podcast is cohosted by Lucia Rahilly and Roberta Fusaro.

The following transcript has been edited for clarity and length.

The state of M&A

Roberta Fusaro: The geopolitical situation has changed a bit since McKinsey’s annual M&A report came out earlier this year. How are people thinking differently about M&A these days?

Jake Henry: We came into the year with a lot of expectations. I think almost every investment bank—and a lot of our competitors—had expected a very dramatic rise in the level of M&A activity. There was a lot of optimism. We saw nearly every CEO and board discussing M&A in some capacity. And then uncertainty spiked. What you’ve seen more or less right now is just a pause, where people are trying to look for bedrock and for certainty.

Roberta Fusaro: The report itself revealed some interesting stats on M&A activity. For instance, there were three sectors—global energy and materials; technology, media, and telecom; and financial services—that accounted for nearly 60 percent of the value of companies changing hands. I find that fascinating. What are some of the other findings that jumped out at you in this year’s report?

Jake Henry: That was a pretty important finding. If you look back at 2024, total deal activity was up some, just into the double digits—about 13 percent overall. It was concentrated in those three industries, and it goes back to the idea that those that faced regulatory shocks, a need for incremental scale, and a push for capability access will always be the engines for deals.

Some of the more interesting findings started to look at the intents. There were several years when a number of dealmakers did pursue a spike in deals that were capability driven, trying to access a whole new series of tech capabilities. That was a very prevalent thesis through ’21, ’22, and ’23. The other intent, of course, was the tuck-in, which became much more prevalent in 2024 than it had been in the prior several years. There was a new concentration in that time of programmatic acquirers that had a through-cycle mentality.

Going (and staying) on offense

Roberta Fusaro: I know programmatic acquisition is part of a through-cycle mindset, but what are other aspects to the through-cycle mindset?

Jake Henry: The through-cycle means that, regardless of the environment, we’re committed to being able to use M&A in a way that will be value generating. But what sets apart the leaders who have that mentality, especially in the current environment, is the ability to look at the advantages they have and use those advantages in any climate.

Those advantages could simply be a strong balance sheet, an operating momentum using the diversification of their businesses, or their natural strengths to weather any storm. But in the current environment, it’s about going on offense and realizing that there are a number of opportunities the current geopolitical environment presents.

Those could be in accessing prized assets that are suddenly at valuations that are more accessible. Could be foresight, understanding the trade corridors that will be essential going forward and being able to access those. Could be using their own supply chain footprint to be able to lessen the impact of some of these trade barriers and create value and synergies. What I’m excited to see—and there are a number of companies thinking in this way right now—is how they use their relative strengths as assets in the current uncertain environment.

Roberta Fusaro: We know that growth is the holy grail for every business. How can M&A strategy be effective for growth?

Jake Henry: The old McKinsey adage is that no strategy is complete without a consideration of M&A activity. Now, growth is harder and harder to access. When you take the stacked rank growth board of any company out there, there are a lot of those growth avenues that are now in the red. And that could be due to geopolitical uncertainties in terms of geographies that are underperforming. It could relate to exposures that they have because of the geopolitical environment in the form of pricing and otherwise. So as these companies are looking at their growth boards, they do see holes.

M&A can be a path to fill those gaps and create additional pathways to achieving it. It can also be a way to access capabilities that are required for growth. Every CEO that we see in top-performing companies maintains a very active M&A strategy, where they’re very clear about the spaces that they find attractive, the capabilities that they bring to the table that will be value-creating, and the areas and capabilities they are and are not good at so they can avoid different assets and avoid going down rat holes. They then maintain a set of processes that allows them to consistently create value from M&A.

So, yes, I do believe that M&A is essential to growth, and I think that you’ll see, even in the current environment, many more CEOs using it to offset some of the challenges that they see. We need to get out of the woods before that will happen, but I do have positivity in the outlook.

Private equity trends

Roberta Fusaro: According to the report, PE [private equity] contributions to M&A activity have dropped by billions of dollars over the years, and that’s globally. How might that change? What could inspire PE to get involved again in M&A?

Jake Henry: Interest rates still haven’t come down to the level at which these deal models are attractive. They’re still only a couple of years post-COVID-19, in terms of comps, to be able to see the true operating trajectory of these businesses. And there aren’t willing buyers that can agree right now on valuations, given some of the uncertainty in the outlook.

So in this current environment—and, again, I do think this is a powder keg that, with the right mix of fundamentals, could start to go to the moon quite rapidly if we saw movement in the right direction on interest rates and if we saw some of this uncertainty in the current environment abate—you have investors in a couple of situations.

They either have assets that have very little exposure to the uncertainties that exist, or they have assets that are tremendously affected. It truly is almost a binary situation. A lot of folks in the tech services space have very little exposure with their current assets and will be in a position to transact. A lot of folks in the industrial areas that have concentrated manufacturing will be in a position where it may take them even longer to make those exits.

Revisit M&A capabilities

Roberta Fusaro: So, Jake, what’s the one piece of guidance you would give to get more value out of M&A regardless of what’s going on in the world?

Jake Henry: The one piece of advice that I would give clients right now is to take a hard look at their M&A capabilities. Over 70 percent of our clients haven’t done a deal in three years, so a lot of their capabilities are rusty. While many of them got excited coming into 2025 and started to rev up their M&A pipeline and to consider assets, maybe now they’ve taken a pause, and there’s a lot of focus on, “Can we do a deal? Will the deal be value-creating?” et cetera. Not as many are looking at their integration capabilities in particular.

Once you get the tiger by the tail and you actually get that deal moving rapidly, the entire focus shifts to, “How are we actually going to create value from this in the integration context?” So I do see a lot of the leading companies in that group right now refreshing their playbooks, ensuring that their leaders are all well versed in the governance that will lead to value creation, and spending time on the capability side of the equation.

Roberta Fusaro: This has been a great conversation, Jake. Thanks for joining us.

Jake Henry: Thanks so much for having me. The uncertainty is here today, but it may not be here tomorrow, so let’s keep in touch.

Culture and M&A

Roberta Fusaro: Mieke, we just heard from Jake about how leaders need to focus on refreshing their capabilities to prepare for the potential increase in M&A.  What do leaders need to understand about the role of culture in mergers?

Mieke Van Oostende: Culture is as important, and probably some people would say is even more important, than the value-creation, the hard side, and the numbers. Again, it’s kind of logical, right?

The way we define culture is we have multiple layers. The first layer is about the vision and the mission. The second layer is about values, which are a common set of values and behaviors—the norms a company pursues.

The third layer is what we would call management practices and working norms. This has to do with, how do you set performance management, how do you do talent development, how do you run meetings, is it acceptable to send an email over the weekend or not, and do you expect an answer to this email? But where the rubber hits the road is at the level of the management practices and the working norms.

I always compare it with two households that are coming together. You, Roberta, have a way to run your household. I have a way to run my household. I don’t think one is probably better than the other. But it is important to align on who will do the cooking, who will do the grocery shopping, who will manage the finances. So that is where we see similarities but also differences. If you’re not making the differences clear, this can lead to quite some friction during the integration and beyond.

Roberta Fusaro: If businesses can get this right, what does it mean for success with M&A?

Mieke Van Oostende: We see that the success of reaching your value creation—the hard side of it, revenues and costs—is becoming much higher, or rather, the probability is much higher. This is about performance management. This is about accountability. This is about setting the targets and knowing if it’s about meeting the targets, over-reaching the targets, or closely reaching the targets. All of these elements are important for executives and people joining the new company to understand what their role is. We have seen that there are several management practices, especially on the acquiring side, that are critical for successful integration.

Roberta Fusaro: The report talks about the importance of diagnosing how the work gets done. Can you elaborate on that?

Mieke Van Oostende: We use a technique called the Organizational Health Index, which includes management practices, alignments, strategic direction, and leadership but also execution around accountability, operational excellence, and so on. We explore all those dimensions through interviews, surveys, and focus groups. Then we come to a picture where we can compare two organizations. In 80 percent of the situations involving an integration, there are clearly similarities in how we potentially attract talent and how we steer the organization. But there are also differences, right? It’s about understanding those two buckets. “Where can I accelerate by leveraging those similarities, and what are the differences that can potentially lead to friction and potentially to value destruction?” Then you need to practically address those, first in the integration team and then in the whole organization.

Be thoughtful about integration

Roberta Fusaro: Is there any one piece of advice that you would give to deal teams and executives about a critical success factor for integration?

Mieke Van Oostende: Yes. It’s simple or intuitive advice: Make sure you invest in your integration, your integration team, and your people. I will elaborate a bit.

Companies by now are used to investing in whatever is needed in the upstream part. They have smart people on their M&A team. They will very often take a banker or a consultant to support them in the process, and rightfully so, especially when it involves larger deals. There is meaningful value involved in all of this, and getting it right is important.

What I sometimes see is that the moment a deal is announced with some companies, it’s a bit like, “OK, now we go into a process and we will execute a process.” And, yes, you can potentially approach an integration like that. I’m not convinced that you will realize the value out of that integration, whether it’s from a money perspective, a people perspective, or a capability perspective.

I believe that companies should equally invest and potentially invest more on the integration or separation, depending on the transaction size, in the sense of, “Make sure you have your A team on this. Make sure that your leadership spends enough time in guiding the integration team, making the decisions at the right pace, and also unblocking whatever issue comes along the road. And ensure that you equip your organization and your team in the right way to truly build plans, execute upon the plans, and make the value creation and deal rationale happen.”

Roberta Fusaro: It feels like there could be a potentially large, missed opportunity if you don’t think about transformation through transaction.

Mieke Van Oostende: Correct. I always say that a transaction is only the beginning. It’s not the end of something, right? It’s the beginning of an acceleration in growth, an acceleration in capability building, an acceleration in economies of scale. So make sure that you also look at it from that perspective.

How can CEOs stay connected to their teams?

Lucia Rahilly: Next up, how can leaders keep a true connection with their teams? Our managing producer and editor Laurel Moglen speaks with McKinsey Senior Partner Dana Maor.

Laurel Moglen: You and some of your colleagues wrote an article about five ways to get employees engaged. One practice is to speak the stakeholders’ language, but there are a lot of stakeholders, so what does that mean exactly?

Dana Maor: Leaders who are successful at engaging an organization typically can find one very clear message, sometimes with a very simple tagline that they communicate consistently and broadly with everyone. When we talk about speaking in the audience’s language, we mean taking that message and making it specific to the different stakeholders, customers, employees in different markets, and people in different functions, because we want to be sure that this is truly a life for them. So it’s about meeting the audience on their own terms, in their own reference space.

Laurel Moglen: Another practice encouraged in the article is for CEOs to communicate with their colleagues and not at their colleagues. Is there language you could give as an example that illustrates talking with someone as opposed to talking at someone?

Dana Maor: Asking questions is always a good way to do that, such as asking for examples of how that comes to life in their own context, celebrating examples of organizations following a specific direction that have evolved into a great success. All of these are ways to engage. It’s about asking what resonates, what may be difficult and why, and what we should be talking more about to make that a reality.

Laurel Moglen: And, I suppose, actively listening is important, too. If you’re asking the questions, you also need to listen.

Dana Maor: The worst thing is to ask a question and then not listen, because that would not be authentic at all and would absolutely be against what you’re trying to communicate and achieve as a leader.

Laurel Moglen: What is the best way to use generative AI, assuming that companies are at least dipping their toes in, if not fully embracing it, when it comes to keeping communications as human as possible, with all the various stakeholders?

Dana Maor: Use AI as your assistant, not as your boss. This is exactly what it’s about. There is no question that you can save hours of research and work by bringing all the information together in minutes, or in hours, instead of days. That is extremely efficient.

As you share that communication, it needs to be with empathy and the ability to read people and develop the conversation that we were talking about earlier. The secret is in how we actually use the power of gen AI and AI so that we’re focused on the human aspects of asking the right questions, synthesizing the right way, and sharing it with different people. And, as a result, making this an enabler, making this something that helps us but not something that controls us or replaces us.

Laurel Moglen: Could you speak a little bit more about being able to read people?

Dana Maor: There is a very good question about whether younger generations—who are now growing up with more and more technology and less and less human interactions—are still as skilled at doing that. There is something about reading the energy in the room, sensing where things are headed, looking at someone based on their facial expressions or their body language, even on Zoom, and sensing that something is off or maybe that they’re excited about something or they want to say something.

I am convinced that, like many other things, over time we will develop gen AI and other technologies that will also start making very smart assumptions about that as well. But at the moment, entering a room, inspiring, setting the stage, sensing the energy, navigating through that, think about facilitating a top-team session, for example—when you have an amazing, skilled facilitator, they sense what’s happening in the room and they change the agenda according to how things evolved in the session. Can gen AI do that? I don’t think that it can do that yet.

Laurel Moglen: Thank you for everything you shared today.

Dana Maor: Of course. And I think you said two important things. One is, “How do we have that conversation and engage others?” The other one is, “How do we very actively listen?” because that is the only way that you can truly sense what’s happening in the room, either visual or physical. I also take that away from our conversation.