What is Flip-over?
In the context of corporate governance and boards, a "flip-over" or "flip" refers to a situation where a company's management team is replaced by a new management team that is brought in from outside the company, often through a leveraged buyout (LBO) or a management buyout (MBO).
In a flip, the new management team typically takes control of the company with the goal of turning it around and improving its performance. This can involve restructuring the company's operations, cutting costs, and changing the company's strategy. The new management team may also take the company private, delist it from the stock exchange, and take it in a new direction, that would not be accepted by public market shareholders.
The flip-over strategy can be used as a way to acquire undervalued companies, and improve their financial performance and growth. It is also used as a way to acquire companies with strong market position, but underperforming management, as the new team will have different expertise, vision, and strategy to improve the company's results.
However, a flip-over strategy also carries risks, as the new management team may not have the necessary experience or expertise to successfully turn around the company, and the cost of the leveraged buyout or management buyout may be too high. Additionally, the flip-over can bring a significant amount of debt to the company, making it more vulnerable to the financial crisis, or creating a misalignment of incentives for stakeholders.
Flip-over strategy is a high-risk, high-reward strategy, which allows for a new management team to take control of an underperforming or undervalued company, but also brings many risks and challenges. It's important to carefully evaluate the potential benefits and drawbacks of such a strategy and align it with the long-term goals of the company and its shareholders.