Why Your M&A Process Should Start With Strategy, Not Targets

By Lasse Mäkelä, Founder, Larzon Capital

Most M&A processes start in the wrong place.

Bain and Company's 2025 research found that only 30 percent of strategic acquisitions met or exceeded their internal financial targets. The same research revealed something equally striking: the top quartile of acquirers by value creation walked away from four to six deals for every deal they signed. The bottom quartile signed roughly 80 percent of the deals they entered exclusivity on.

That gap between the best and worst acquirers is not primarily explained by access to better targets or superior due diligence. It is explained by discipline. The best acquirers know when to stop. The worst feel compelled to close.

Understanding why that compulsion exists, and how to counteract it, requires looking at the full system: strategy, process, and incentives.

Strategy first, targets second

M&A is a tool. Its purpose is to close the gap between where a company is and where its strategy says it needs to go. That sounds obvious, but the implication is that the strategy has to come first and be genuinely clear before any M&A activity makes sense.

Before a target list is built, the leadership team needs to answer a prior question: what does this company need that it does not currently have? The answer might be a new geography, a technology capability, a customer base, a product line, or something else. Once the gap is defined, the next question is what form of relationship would actually close it.

The spectrum runs from commercial cooperation at one end through joint ventures and minority investments to full acquisition or merger at the other. Each option carries different costs, governance demands, and integration risks. The right answer is not always full ownership, and defaulting to it without examining the alternatives wastes both money and management attention.

Only once those questions are genuinely resolved does it make sense to ask which specific companies could fill the gap. The target list is an output of strategic clarity, not a substitute for it.

The drift problem

Where this breaks down in practice is in the gap between when a strategic decision is made and when a transaction closes. M&A processes are long. Six months from first approach to signing is fast. Two to three years is not unusual for sensitive or complex transactions.

A company's strategy can change meaningfully over that period. Two patterns produce most of the damage.

The first is timeline drift. A company identifies an attractive target and begins a quiet approach. Two years pass. By the time a transaction becomes achievable, the acquiring company's own strategic priorities have shifted. The target that was once in the sweet spot is now a partial fit at best. But the process has momentum, relationships have been built, and there is internal pressure to close something after two years of work. The strategic rationale is stretched to fit the target rather than the other way around.

The second is clarity drift. A company pursues multiple strategic directions simultaneously, which is often reasonable, but the M&A team does not have a clear enough picture of which direction is the priority. Different internal stakeholders pull the target list in different directions. The team ends up working on opportunities that are not quite aligned with each other and not quite aligned with where the CEO actually wants to go.

Both problems share the same root: the M&A function is working from a strategic brief that was accurate twelve months ago and may no longer reflect current priorities.

The incentive problem

There is a third driver that is less often discussed openly: how M&A professionals are compensated.

I have spent my career on different sides of this question. During eight years in investment banking, completing the transaction was the incentive. Full stop. Whether the deal was the right one for the client at that moment in their strategic journey was a separate matter, and the fee structure did not ask it. The pull toward closing was structural, not a matter of individual ethics.

At KONE, where I led M&A across more than 30 acquisitions per year, the incentive structure was looser: broadly speaking, a manager's assessment of the quality of your work, supplemented by stock options that provided some longer-term alignment. The options were a step in the right direction, but without clear value creation metrics tied directly to M&A decisions, the evaluation of what constituted good M&A work remained partly subjective.

The clearest alignment I experienced came through equity. At Consti Group, Invesdor, and Multitude, my incentives were tied directly to ownership and, in Multitude's case, to explicit management bonuses. When your personal financial outcome depends on whether the business is worth more in three years than it is today, the decision-making calculus changes. You think harder about whether a given acquisition actually contributes to that outcome, and you are more willing to walk away from one that does not.

The research supports this. Bain's finding that the best acquirers walk away from four to six deals for every one they close is not a coincidence. It reflects organisations where the people making M&A decisions are measured on outcomes rather than activity.

The implication for M&A incentive design is uncomfortable but clear: rewarding M&A professionals on deal count or volume acquired produces exactly that: deals and volume. The incentive should be in the value-added category, with a time horizon long enough to capture whether transactions actually delivered what was promised. Aligning M&A compensation with the same long-term value creation metrics that govern senior management is the closest thing to a workable answer I have found, though it is rarely applied consistently.

Keeping M&A close to strategy

The structural fix is more straightforward than the incentive question, though it requires genuine discipline to maintain.

The M&A function needs to be part of the live strategy conversation, not a downstream recipient of strategy outputs. One practical mechanism is a quarterly pipeline review where active processes are assessed not just on their progress but on their continued strategic relevance. The question at each review is not only "how is this deal progressing?" but "does this deal still belong in the pipeline given where the company is today?" That is a different question, and it needs a different conversation.

When strategic priorities shift, the M&A team needs to know immediately and understand what that means for current activity. And someone, whether that is the M&A head, the CFO, or the CEO, needs to be empowered and willing to halt a process that has lost its strategic rationale, even after significant time and resources have been invested.

That last part is the hardest. Sunk cost thinking is pervasive in M&A. The antidote is not willpower but structure: clear decision criteria established at the start of each process that define under what conditions the process should be stopped, reviewed alongside the live strategic position at each pipeline review.

M&A as a tool, not a goal

The frame that holds all of this together is simple. M&A is not a goal. It is a tool for reaching a strategic destination. A transaction that closes on good terms but moves the company in the wrong direction is not a success. A process halted after twelve months because the strategic case no longer holds is not a failure. It is the system working as it should.

The companies that do this well are those where the M&A function has a genuine, current understanding of where the business is trying to go, where the incentive structure rewards value creation rather than activity, and where someone is consistently willing to ask the uncomfortable question: should we still be doing this?

That combination is rarer than it should be. It is also usually the difference between M&A that compounds value over time and M&A that produces write-downs and regret.

Lasse Mäkelä is the Founder of Larzon Capital, a cross-border M&A advisory firm based in Switzerland, focused on the Nordic-DACH corridor.