Firms Rebuilding Struggling IPOs for Profit

Physician's Money Digest, January 2007, Volume 14, Issue 1

BusinessWeek

Physician-investors have read abouthouse flipping and even Web site flipping,but you may not have heard about thepopular trend in recent years in the financialworld that is IPO flipping. According to, IPO flipping involves abuyout firm taking on a derelict company,turning them around over several years,and then selling them to public investorsfor a big profit. Private ownership allowsthe firms to slash costs and shed assetsaway from the public eye, allowing for thebig turnaround. When the time is taken toslowly and properly turn a companyaround, this method works very well. Since2001, IPO flips have earned annualizedreturns of more than 20%. But when companiesperform a buyout and flip it as soonas possible for a quick buck (ie, a strip andflip), the outcome is usually negative. Forexample, Burger King Holdings Inc wentthrough a public strip and flip on May 17this year and has dropped 12.6% since.While an IPO flip seems like an attractiveinvestment, you'll need to be aware thatit's being done properly and is not just aquick turnaround.