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Most CHROs in PE-backed companies are building for the wrong buyer.
Building for the Wrong Buyer
The standard playbook looks like this: clean up the comp structure, build a performance management process, run engagement surveys, stand up an HRBP model, develop the leadership bench. All of it is real work. Most of it is necessary work. None of it survives a transaction in a form the next buyer can see, measure or price.
I have been on the inside of over 30 acquisitions. The due diligence process follows the same logic in almost every one. Buyers assess financials, customer concentration, operational risk, legal exposure and the quality of the five to eight positions most directly tied to the investment thesis. What they do not assess is the people infrastructure the outgoing CHRO spent three years building.
The engagement survey scores do not appear in the data room. The competency framework does not get priced. The leadership development program that took 18 months to build transfers only in the sense that the people who went through it are still employed. And even then, the buyer has no reliable way to assess what capability they actually acquired.
The value is real. The business ran better because of it. But in the transaction, it is invisible.
This is not a diligence failure. It is the correct response to time and information constraints. A buyer completing a 90-day process cannot assess organizational culture, leadership capability depth or HR infrastructure quality. Those things take years to understand from the inside. The diligence team does not have years. They have weeks and a data room.
The CHRO who does not understand this dynamic is building genuine value that evaporates the moment the deal closes. As I have written about the hidden cost curve in PE-backed hypergrowth, people decisions made without exit awareness do not just cost money during the hold period. They cost credibility at the exit.
What Due Diligence Actually Sees
Standard human capital diligence covers two areas. Key person risk: whether one or two individuals are so operationally embedded that their departure would damage business continuity or client relationships. And compensation benchmarking: whether total cash is at or near market for the roles that matter to the thesis.
That is the full scope of most people-side diligence.
Everything else is invisible by default. Not because buyers do not care about people. Because the tools and the timeline do not support deeper assessment. A PE firm buying a $50M revenue company in a 90-day process is not going to discover that the VP of Operations has exceptional judgment, that the sales team has unusually high trust in their manager or that the culture the outgoing CHRO built is durable under pressure. Those things are real. They matter. They are not discoverable in the process.
The CHRO who spends four years building those things and then presents engagement scores and training completion rates in the data room has confused the work with the evidence. The work may have been excellent. The evidence is not in a language the buyer can price.
The Failure Mode I Have Watched Repeat
What Gets Built vs. What Gets Bought
In one company I worked with, the HR function had built a genuinely strong operating foundation over a four-year hold period. Structured onboarding, a functioning HRBP model, calibrated performance reviews, a leadership development program with measurable completion rates and consistent delivery. When the exit process started, the investment banker asked for headcount by function, compensation by band and an org chart. That was the people section of the data room.
Three weeks of preparation produced four slides. Nothing the HR team had built appeared in them.
The buyer could not see it and therefore could not pay for it. The company the buyer acquired ran better than it would have without that infrastructure. The buyer benefited from the work. The outgoing CHRO received no credit for it. This is not an unusual outcome. It is the default.
The pattern repeats because the CHRO and the PE board are operating from different definitions of value. The CHRO defines value as organizational capability. The board defines value as enterprise value at the moment of sale. These are not the same thing, and in most companies, no one bridges the two.
The cost is not just to the CHRO. It is to the company. When people investment is not tied to the exit thesis, the organization gets a lot of capability it does not need and not enough of what it does. I have written about this structural disconnect in The People Strategy Execution Gap, where the breakdown between what HR builds and what the business actually needs is almost always structural, not personal.
The Only People Work That Transfers
There is one HR domain that a buyer can see, measure and price: talent density in pivotal roles.
Pivotal roles are not the most senior roles. They are the small number of positions that disproportionately determine whether the investment thesis executes. In a professional services company, that might be two or three delivery leaders whose judgment and relationships drive client retention and margin. In a healthcare technology company, it might be the clinical operations lead and the head of implementation. In any scaling business, the list is short. Rarely more than five to eight roles.
When those roles are occupied by people with demonstrated, measurable capability, the buyer can see it. Revenue per head. Client retention rates. Execution consistency across reporting periods. Transition risk when a key leader moves. These metrics appear in the data room. The capability behind them has a price.
This is what transfers. The CHRO who focuses people investment here is building something a buyer can actually find.
Three Things to Do Differently
- Map the exit thesis before building anything.
Before designing a program or a process, the CHRO needs to understand what the board expects to hand off and to whom. Strategic buyers value integration capability and cultural compatibility. Financial buyers value execution speed and margin clarity. These are different talent profiles and they require different investments.
I have seen CHROs spend 18 months building a leadership bench for a company being positioned for a strategic acquisition where the buyer intended to install their own leadership team. Every dollar spent on internal leadership development was wasted. Not because the work was wrong. Because the map was wrong. The exit thesis was never a variable in the people investment decisions.
A one-hour conversation with the PE board at the start of the hold period about the intended buyer type and the exit timeline changes every people decision that follows.
- Upgrade talent density in the roles that appear in the data room.
The positions a buyer will scrutinize are knowable in advance. Build the capability profile for each pivotal role. Assess current occupants honestly against it. Where the gap is large and the role is pivotal, upgrade. Where the gap is acceptable and the role is not pivotal, move on.
This is capital allocation applied to talent. The CHRO who can frame that logic in board terms, not HR terms, is operating in a different category. I have written about culture as the defining variable in M&A integration, but the same logic applies before any transaction starts. What you build in the hold period is only as valuable as the buyer’s ability to see it.
- Translate the work into transaction language before the process starts.
The data room is assembled under time pressure. What goes in reflects what the management team built in advance, not what the diligence team discovers in the final stretch. The CHRO who has been framing talent decisions in financial terms throughout the hold period has something to put in the room when the moment comes. Cost per pivotal role filled. Revenue continuity tied to specific people. Execution risk of a leadership vacancy in each of the five to eight roles that matter.
The CHRO who has been framing the work in HR terms will start assembling slides the week the process launches and will produce a people section that communicates nothing a buyer can price.
Data room conversations I have sat in across 30+ acquisitions confirm this pattern consistently. The companies with substantive people sections were the ones where the CHRO had been building toward the narrative for years. Not days. As I described in The Execution Gap Nobody Planned For, the decisions that determine exit outcomes are almost always made before the exit conversation starts.
FAQ
How does a CHRO identify which roles are truly pivotal in a PE-backed company?
Start with the investment thesis, not the org chart. Ask the board which three to five operating outcomes determine the return. Trace backwards to identify which roles have the most direct and measurable impact on each one. The answer is rarely the obvious senior titles. It is often one layer below the C-suite, in the roles where execution actually lives.
What does talent density look like to a buyer in diligence?
Buyers will not ask for a talent density score. They will ask about key person risk, bench strength and leadership continuity. Talent density answers those questions before they are asked. It shows up as revenue stability during leadership transitions, clear successors in pivotal roles and execution consistency across reporting periods. These are visible in the financials. The people work behind them does not need to be explained. It is already priced in.
How early in the hold period should a CHRO be building toward exit-ready people work?
Day one. A three- to five-year hold period sounds long. The talent decisions made in year one determine what is available to show in year four. A CHRO who starts thinking about exit readiness in year three is managing the consequences of decisions they did not make earlier. The window to build measurable talent density in pivotal roles is the full hold period, not the final act of it.
If you are navigating this right now, let’s compare notes. I am currently opening conversations for my next fractional or full-time leadership role.
About Jeffrey Roe
Jeffrey Roe is a Strategic HR and Operations Executive with experience leading the people function across 30+ acquisitions in PE-backed and high-growth environments. He has served in senior HR leadership roles in clinical research and healthcare, including at Clinipace and D2V Clinical. Jeffrey writes about the operating decisions that determine whether scaling companies grow well or break under their own weight. He is currently available for CHRO, CPO and VP People roles. Let’s connect on LinkedIn.