Re-Engineering the Business Process at Procter & Gamble

Strategic FIT

Regardless of their category or structure, all M&As share the common goal that the value of the combined

companies will be greater than the sum of the two parts. M&A success depends on the ability to achieve

strategic fit. Harvard Professor Joseph Bower identifies five broad types of strategic fit, based on the

relationship between the two companies and the synergies sought: overcapacity M&A, geographic roll-up

M&A, product or market extension M&A, M&A as R&D, and industry convergence M&A.

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Overcapacity M&A

In this horizontal M&A, the two companies often competed directly, with similar product lines and markets.

The new combined entity is expected to leverage synergies related to overcapacity by rationalizing

operations (for example, shutting factories). This often one-time M&A can be especially difficult to execute as

both companies’ management groups are inclined to fight for control.

Geographic Roll-Up M&A

In a geographic roll-up the new entity seeks geographic expansion, but often keeps operating units local. For

example, Banc One purchased many local banks across the United States in the 1980s. Banc One was, in

turn, acquired by JPMorgan Chase & Co. in 2004.

Product or Market Extension M&A

Market-based roll-up focuses on extending a product line or international coverage. Often the two companies

sell similar products but in different markets, or different products in similar markets. Brands are often a key

motivation. Philip Morris purchased Kraft for US$12.9 billion—four times its book value. Philip Morris CEO

Hamish Marshall justified the premium: “The future of consumer marketing belongs to companies with the

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