Last year broke records in mergers and acquisitions. More than 28,000 deals, worth a total of over $3.2 trillion, were struck—an increase in value of one-third over the previous year’s deals and nearly six times the value of deals completed in 1994. The sheer number suggests a variety of purposes behind the agreements. Many of today’s most successful companies, including Cisco Systems, use mergers very effectively to improve their skills. Others, such as Swiss Bank Corporation and Union Bank of Switzerland, reenergize themselves by merging and making follow-on acquisitions. Deals between chemical and pharmaceutical companies are fundamentally altering the shape of those industries, while mergers such as those between America Online and Time Warner and between Citicorp and Travelers Group create whole new industries.

Despite all this activity, many academics, analysts, regulators, and consultants challenge the value of mergers. At McKinsey we believe that mergers do create value, but only if the right deal is struck and integration is tailored to the situation and managed well.

If a deal has been misconceived, no degree of brilliant postmerger integration will clean up the mess. And even if a deal has been well thought out, the participants can stumble. Many key...