Invezz is an independent platform with the goal of helping users achieve financial freedom. In order to fund our work, we partner with advertisers who may pay to be displayed in certain positions on certain pages, or may compensate us for referring users to their services. While our reviews and assessments of each product are independent and unbiased, the order in which brands are presented and the placement of offers may be impacted and some of the links on this page may be affiliate links from which we earn a commission. The order in which products and services appear on Invezz does not represent an endorsement from us, and please be aware that there may be other platforms available to you than the products and services that appear on our website. Read more about how we make money >
Asset stripping
3 key takeaways
Copy link to section- Asset stripping involves acquiring a company to sell its assets separately for profit.
- It can lead to the reduction in the target company’s overall value and potential insolvency.
- While it can be profitable for the acquirer, it may have negative impacts on employees, stakeholders, and the community.
What is asset stripping?
Copy link to sectionAsset stripping occurs when an investor or acquiring company purchases a company primarily to sell its assets piecemeal, rather than to continue its operations. The goal is to unlock the value of the assets, which are often worth more individually than as part of the whole entity. This strategy can be particularly attractive if the market value of the company’s assets exceeds its stock price or purchase cost.
Importance of asset stripping
Copy link to sectionAsset stripping can be a profitable strategy for investors, but it also has significant implications for the target company, its employees, and other stakeholders. Understanding asset stripping is important for corporate governance, regulatory oversight, and investment analysis. It highlights the need for balanced approaches that consider both financial returns and the broader impact on stakeholders.
How asset stripping works
Copy link to sectionAcquisition: The acquiring company or investor identifies a target company with undervalued or mispriced assets. They purchase the company, often using a leveraged buyout (LBO) to finance the acquisition.
Asset sale: Once control of the target company is obtained, the acquirer begins selling off its valuable assets, such as real estate, machinery, intellectual property, or profitable subsidiaries. These assets are sold individually, often at a higher total value than the purchase price of the entire company.
Debt repayment and profit: The proceeds from the asset sales are used to repay any debt incurred during the acquisition. Any remaining funds represent the profit from the asset stripping strategy.
Examples of asset stripping
Copy link to section- Real estate: A company owns valuable real estate that is underutilized or not reflected in its stock price. An investor acquires the company, sells the real estate at market value, and profits from the difference.
- Subsidiaries: A conglomerate with several profitable subsidiaries is acquired by an investor. The investor sells each subsidiary separately, realizing higher returns than the market value of the conglomerate.
- Machinery and equipment: A manufacturing company with outdated operations but valuable machinery and equipment is bought by an investor who sells the assets to other companies needing these resources.
Real-world application
Copy link to sectionConsider a private equity firm that identifies a manufacturing company with valuable real estate holdings. The firm acquires the company for $100 million, leveraging significant debt to finance the purchase. Upon acquisition, the firm sells the real estate assets for $120 million. After repaying the acquisition debt, the firm nets a significant profit. However, the manufacturing company, now stripped of its key assets, may face operational challenges or even bankruptcy, impacting employees and local communities.
Understanding asset stripping is crucial for investors, corporate managers, and policymakers. While it can generate substantial returns for investors, it raises ethical and regulatory considerations due to its potential negative impact on stakeholders.
Related topics you might want to learn about include leveraged buyouts (LBOs), corporate restructuring, and corporate governance. These areas provide further insights into the strategies, risks, and ethical considerations involved in high-stakes corporate financial maneuvers.
More definitions
Sources & references

Arti
AI Financial Assistant