Buy, Strip, And Flip

No, it's not a club on the far end of the Vegas Strip.

As the name implies, a "buy, strip, and flip" is often used by investment companies to buy a target company, use the assets to pay off the purchase, and then sell it a short time later in an initial public offering (IPO).

The investment company does not usually spend a lot of time and money to improve the company before selling, but rather uses their talents to identify the right companies to buy that perhaps are undervalued in the marketplace. Known as a leveraged buyout, the investment company might use the cash on hand at the target company to pay for the purchase, or sell off or close what they consider to be non-essential business units. They also might put new management in place to make the company more attractive to future buyers. A little lipstick might not hurt either.

One example from 2006: Bain Capital, KKR and Merrill Lynch purchased Hospital Corporation of America for $32.7 billion, the largest private equity deal ever at the time. Imagine the banking fees.

A few years later, they took it public in an IPO and made bank.