Buy, Strip And Flip

When a private equity firm buys out a target firm (usually with a leveraged buyout) and then sells the target firm in an IPO within a relatively short period of time. Along the way, the private equity firm may take out loans to make special dividends or carry out other actions to improve its own financial situation.

Private equity firms typically own and manage a target firm for a number of years. In this time, the company's management and financial situation are improved before the private equity firm cuts the newly-successful company loose with an IPO, at which time the private equity firm earns a nice return for all its work.

In the buy, strip and flip situation, purchased firms are held for only a year or two before the IPO. This usually means that the firm's financial situation is virtually unchanged and, as a result, most of these IPOs do not perform very well.