What Holds #4 – The architecture nobody prices
Over 50% of PE-backed companies have now been held for five years or more. The longest stretch in nearly a decade.
And 83% of merger transactions fail to enhance shareholder returns, including PE-backed ones. Most of those failures have nothing to do with the financial thesis.
The financial architecture gets all the attention. Modelled, stress-tested, debated. Every assumption examined.
The human architecture gets moved to a soft corner. Something to address later, once the deal is done, once the dust has settled.
Take something as simple as how people from two newly merged teams learn to work together. The assumption is usually that they will. That collaboration will emerge from proximity, that a common way of working will form on its own. And it rarely does. Under pressure, people retreat to what they know. Their own ways of deciding, their own standards, their own unspoken rules.
Without someone designing that space deliberately, it doesn't form. And the gap that opens isn't visible on any dashboard.
I've worked with companies where the consolidation logic was sound. Complementary offerings, clear synergies, a compelling exit multiple on paper. What the model didn't account for was two leadership teams who had each built something they were proud of, now asked to become one, without anyone designing what that actually meant in practice.
Decisions that should have been simple became political. Standards that were supposed to converge never did. People who were capable and committed on their own became cautious and territorial together.
And it wasn’t because they were trying to be difficult, but because the conditions for something new to form had never been created. The financial thesis was intact. The human architecture was never built. And the gap between those two things is where the value went.
The human architecture isn't a soft concern. It's a value creation mechanism. And like any mechanism it needs to be designed, not assumed. That starts before the deal closes. Not with different financial models, but with different questions.
How will decisions actually be made in the merged entity? Who builds trust across two leadership teams that have never worked together? What needs to be true about how this organisation operates for the thesis to land?
Those questions belong in the data room, but they rarely are.
The most common response to a struggling integration is patience. Give it time. Let things settle.
It's a reasonable instinct.
But in a structure where time is literally priced into the return, patience isn’t a strategy.
So the question worth asking before the next deal closes isn't "how long will this take to resolve?"
It's "how many years are you willing to wait for something that was never designed to happen on its own?"
Joanna Stone works with PE firms and portfolio companies on the human architecture of change.
Thoughts on this? I'd love to hear them. Join the conversation on LinkedIn.
