What Is an Asset Stripper
An asset stripper is an individual or company which purchases a corporation with the intention of dividing it up into its parts to sell or liquidate for profit. An asset stripper will attempt to determine if the value of a company is worth more as a whole or as separate assets. Usually the asset stripper immediately sells off some assets and then sells the functioning portion of the business later.
BREAKING DOWN Asset Stripper
An asset stripper is a corporate purchaser who discovers companies where it is expected that more profit can be created by liquidating the parts rather than through business operations. Assets such as real estate, equipment or intellectual property may end up being more valuable than the company as a whole under current economic conditions or due to poor management.
For example, an asset stripper could purchase a battery company for $100 million. It would then 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.
Companies that are asset-stripped are generally weakened by the acquisition process. They will have less collateral for borrowing and often be in a position where they are unable to as effectively support current debts. This may result in a less viable company, both financially and in its potential to create future business value.