Asset Stripper

What Is an Asset Stripper?

The term asset stripper refers to someone who purchases a company with the intention of dividing it up into its parts to sell or liquidate for profit. The asset stripper — which can be an individual or another business — uses the purchasing process to determine whether the value of the acquired company is worth more in its entirety or when its assets are sold off. In some cases, the asset stripper may sell off the assets and the company in stages.

How Asset Strippers Work

An asset stripper is a corporate purchaser who invests in undervalued companies with the express purpose of earning a profit. These are companies that are sold at a much lower price than their true value. But rather than earning money by taking on the acquired company's business operations, the asset stripper breaks it up and liquidates the parts.

As noted above, these entities generally review whether a target firm is more valuable as a whole or whether they can make more money by dividing up the parts. Some of the assets that raiders look at include real estate, equipment, or intellectual property — all of which may end up being more valuable than the company itself after factoring in economic conditions and the company's management.

Asset strippers usually have a timeline they follow when it comes to liquidating the assets of a target firm. They may sell off some of the acquired assets immediately after completing the purchase while selling the functioning portion later on down the road.

Asset strippers — sometimes referred to as corporate raiders — may be individual investors or larger corporations such as high-net-worth individuals (HNWIs), hedge funds, private equity firms, or the larger competitor of a smaller company.

For instance, a company that takes over a smaller, undervalued company may sell off its equipment and real estate holdings shortly after purchasing the target but may choose to hold on to its intellectual property for a better price in the future. Or it may choose to sell the company's divisions separately. For example, a private equity firm that purchases a computer company may choose to immediately sell its printer and mobile device divisions and put its server division up for sale later.

Asset strippers determine whether an acquired company is worth more in its entirety or when its assets are sold off.

Special Considerations

Companies that are asset-stripped are generally weakened by the acquisition process. They usually have less collateral available at their disposal needed for borrowing and may often be in a position where they are unable to as effectively support their debts. This may result in a less viable company — both financially and in its potential to create future business value.

Example of an Asset Stripper

Let's consider this hypothetical example to show how asset strippers work. An asset stripper may consider purchasing a battery company for $100 million. If the transaction goes through, it may choose to strip and sell the research and development (R&D) division for $30 million, before selling the remaining company for $85 million. This would generate a profit of $15 million for the asset stripper. The asset stripper may also choose to just sell a portion of the business to fulfill debt obligations that were obtained from acquiring the company.