Buy, Strip, and Flip - Explained
What is Buy, Strip, and Flip?
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Table of ContentsWhat is Buy, Strip And Flip?How Does Buy, Strip And Flip Work?
What is Buy, Strip And Flip?
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 firms 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.
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How Does Buy, Strip And Flip Work?
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.