Institutional Strip

What Does Institutional Strip Mean?

An institutional strip refers to the total capital provided by private equity investors to facilitate leveraged buyout. When a private equity company acquires a target company, they first must create a "Newco" (new company) that, in turn, purchases the target company. The cash injected into this new company from the private equity company forms an institutional strip and can be a combination of equity share capital and loan notes.

Divestopedia Explains Institutional Strip

The institutional strip is held by private equity investors, whereas the equity share capital held by management is often referred to as sweet equity.

The attributes of the capital underlying an institutional strip should not impair equity alignment between the private equity group and the management team. The primary goal between differences in the institutional strip and sweet equity is to create motivation for key management members and retention until the exit.