Buy, Strip, and Flip – Definition

Cite this article as:"Buy, Strip, and Flip – Definition," in The Business Professor, updated July 30, 2019, last accessed May 27, 2020, https://thebusinessprofessor.com/lesson/buy-strip-and-flip-definition/.

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Buy, Strip And Flip Definition

A buy, strip and flip takes place when a private equity organization uses its leveraged buyout to buyout a target company that is further sold in an initial public offering within a short time span. In order to make its financial position better and stronger, the private equity firm may borrow money for declaring dividends, and performing other activities. The private equity firm has the complete authority to have effective utilization of the target firm’s resources. The way of dealing with the target doesn’t primarily revolve around increasing the IPO valuation of the target company the time it is placed in the public market. Instead, it is influenced by the fact how much beneficial it is for the private equity organization. The target firm sells the elements that are not necessarily required in its operations in order to reduce costs, and smoothen its business operations.

A Little More on What is Buy, Strip And Flip

Private equity firms generally have the ownership of a target company for many years. Therefore, there is an improvement in the financial position as well as the management of the firm prior to private equity firm cutting this brand-new yet flourished organization loose with an initial public offer. During this phase, the private equity organization tends to have an amazing return on the work done.

In the buy, strip and flip case, the firms that are bought, are held for a maximum of 2 years prior to the IPO. This further states that there is no virtual change in the financial position of the firm, and this leads to negatively impacting the performance of initial public offerings.

Reference for “Buy, Strip And Flip”

Academic Research

Barbarians at the gate? Leveraged buyouts, private equity and jobs, Amess, K., & Wright, M. (2007). Leveraged Buyouts, Private Equity and Jobs (September 10, 2007). Unions, private equity practitioners and policy-makers are all concerned with the effect that private equity finance and LBOs (Leveraged Buyouts) have on employment. Unions are concerned with job destruction whilst practitioners argue they create jobs. Using a panel of 533 LBOs observed over the 1993-2004 period we find evidence that both private equity financed and non-private equity financed LBOs have higher levels of employment pre- and post-buyout when LBOs are exogenously determined, but they do not have significantly different levels of employment compared with non-LBOs when allowing for LBO endogeneity. The results: (1) demonstrate the importance of allowing for LBO endogeneity; (2) are not consistent with LBOs and private equity either creating or destroying jobs.

Invest, Turnaround, Harvest: Private Equity Meets CSR, White, A. L. (2006). Invest, Turnaround, Harvest: Private Equity Meets CSR. Business for Social Responsibility.

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