Dear Leah,
I'm investment director at a mid-market PE firm and one of our portfolio companies is haemorrhaging key talent six months post-acquisition.
We bought this business specifically for its exceptional management team and technical expertise. The deal completed smoothly, we've been hands-off on operations as promised, but three senior leaders have resigned in the past two months and our talent retention bonuses aren't working.
Exit interviews reveal people feel "the culture has changed," that decisions are now
"all about the numbers," and that the leadership team that built the business is being "sidelined by finance people."
Our operating partner insists we're just "introducing proper governance," but we're watching our investment thesis walk out the door. The CEO we backed is demoralised and hinting they might leave too. How do we protect portfolio value when our very presence seems to be destroying what we bought?
— Watching value walk out the door
Oh dear!
Welcome to the private equity paradox: you bought the people, but your acquisition process is driving them away. Your operating partner thinks they're adding value through governance, but they're actually destroying value through cultural imperialism.
DIAGNOSIS:
Your portfolio company is experiencing culture shock. The team that built the business feels invaded by "finance people" who don't understand what made the company special. Your retention bonuses are failing because this isn't about money. It’s about autonomy, respect, and professional identity. People would rather leave than watch what they built be dismantled by spreadsheet logic.
THE ROOT OF THE PROBLEM:
You've introduced "proper governance" without earning the right to change how things work. Your operating partner is implementing best practices without understanding local context, which feels like colonisation to the people who made this acquisition attractive in the first place. You're optimising for financial metrics whilst accidentally destroying the human relationships that create those metrics.
THE PATH TO RESOLVING IT:
Pause the governance rollout and invest in cultural integration. Your operating partner needs to learn why this business worked before they change how it works. Create dialogue between your finance team and portfolio company leadership about what "proper governance" means in this context. Give the management team agency in designing the integration process rather than imposing it on them.
YOUR ROLE GOING FORWARDS:
Redefine value creation: protecting culture isn't soft, it's protecting your investment thesis.
Resource the integration: allocate budget for organisational repair specialists who understand post-acquisition dynamics.
Measure what matters: track engagement, retention, and cultural indicators alongside financial metrics.
Learn from this: every future acquisition needs cultural integration planning, not just financial integration.
