Mega-Buyout Plan B: Strip and Flip?

On Tuesday, I mused about the exit troubles facing mega-buyout firms:

Isn’t an IPO the only viable exit option for a market leader that was taken private (Clear Channel, SunGard, HCA, etc.)? The only way to get a trade sale would be to run the company into the ground (buy the best company, make it second-best), while sponsor-to-sponsor deals are unlikely due to both high leverage loads on the original deal and the likelihood of an original consortium (i.e., fewer firms left to sell to).

As some commenters noted, it seems that I forgot an obvious answer: The strip and flip. You know, when a PE firm buys a big company, sells it off piece by piece and hopes that the sum of its sales is greater than the original acquisition. After all, the success of a PE investment is not necessarily synonymous with the success of a PE-backed company.

If we posit that “strip-and-flip” may become the only viable exit for many mega-LBOs, then it’s a fascinating development. Buyout firms have spent years running away from the strategy (and its callous connotations), preferring to employ buy-and-build models. Even the notion of turning around underperforming companies fell out of vogue, supplanted by taking strong companies and making them stronger.

In fact, all of this conditioning is probably why I didn’t think of “strip-and-flip” in the first place (much better than blaming my own cognitive failings).