Private Equity’s New Playbook: Cultivating Culture for Long-Term Growth

The cultural quotient is no longer optional—it’s fundamental.

For decades, private equity (PE) firms prioritized operational efficiency, financial engineering, and strategic realignment as levers for value creation. Culture? That was often considered soft—intangible and secondary.

But in today’s climate, the rules have changed. With increased competition for deals, longer hold periods, and heightened stakeholder expectations, forward-thinking PE firms are embracing a new reality: organizational culture is not a footnote—it’s a strategic asset.

The Shift: From Control to Culture

Historically, the PE model focused on financial and structural transformation. Deal teams optimized EBITDA, streamlined operations, and prepared portfolio companies for exit. Leadership changes were frequent, and integration playbooks were rigid. Culture was rarely in the due diligence binder.

Today, firms are recognizing that sustainable value creation depends on how people think, act, and align.

Why the shift?

• Longer Hold Periods: With average hold times extending beyond five years, short-term wins aren't enough. Firms must build cultures that support resilience and adaptability.

• Human Capital as Differentiator: In talent-constrained industries, retaining and motivating top performers can be a more potent lever than product innovation or pricing.

• ESG & Stakeholder Pressures: Investors and boards increasingly expect transparency around culture, DEI, and employee engagement.

• Post-COVID Reality: Hybrid work, digital transformation, and mental health awareness have made culture a board-level issue.

Culture as a Strategic Lever

What does it look like when private equity treats culture as core to strategy?

1. Due Diligence on Culture

Leading firms are integrating cultural assessments into pre-acquisition diligence. This goes beyond leadership bios and Glassdoor reviews. It includes:

• Engagement and turnover metrics

• Values alignment across teams

• Conflict resolution patterns

• Leadership communication styles

• Cultural integration challenges in past M&A

By diagnosing cultural dynamics early, firms gain insight into execution risks and post-close friction points.

2. CEO Fit and Leadership DNA

The CEO is the culture-carrier. Instead of a default "replace-the-CEO" strategy, more PE firms are evaluating whether existing leaders can evolve—and if new leadership fits the cultural arc needed.

Forward-thinking GPs invest in leadership assessments, coaching, and 100-day onboarding plans that reinforce desired cultural norms from day one.

3. Culture-Linked KPIs

It's not enough to say culture matters—it must be measured. Firms are adopting KPIs that signal healthy cultures, including:

• Engagement survey participation and scores

• Internal promotion rates

• Cross-functional collaboration indicators

• Inclusion and psychological safety metrics

These aren’t feel-good metrics; they correlate with revenue growth, retention, and innovation velocity.

4. Culture in Value Creation Plans

Culture initiatives are being explicitly woven into value creation plans (VCPs), right alongside margin expansion and revenue targets. For example:

• Codifying core values and behaviors

• Training frontline managers on feedback and coaching

• Aligning performance incentives with collaborative behaviors

• Building cross-departmental task forces for innovation sprints

This cultural intentionality accelerates transformation and reduces change fatigue.

Culture's Impact at Exit

Buyers are asking more pointed questions about leadership and culture. A well-aligned, engaged workforce can be a major differentiator in a sale process. Anecdotally, firms that proactively invest in culture often command higher multiples—especially in sectors like healthcare, tech, and services where people are the product.

Moreover, a company with a healthy culture is better equipped to handle integration post-acquisition, making it more attractive to strategic buyers.

The PE Culture Imperative

This cultural shift doesn’t mean abandoning traditional PE rigor. It means expanding the definition of “value.” Just as digital transformation became table stakes in the 2010s, culture is the next strategic frontier.

Private equity firms that embrace this evolution will not only drive stronger performance—they’ll build companies that thrive long after the exit.

Ready to elevate your portfolio's performance by investing in culture? Hollinden helps private equity firms build cultural fluency into every stage of the investment lifecycle. Let’s talk.