Asset stripping is the act of selling different assets of a business, but this is not just about seselling something like a concrete factory or a hotel, it may be turning a large business into a number of smaller ones and selling these off. For example a Travel Agency might have part of the business that does foreign exchange and insurance for tourists. By turning this into a separate business and selling into another firm, say an insurance specialist, it will gain cash which could be given to shareholders or used to invest in the existing business. In terms of PE firms it is true that some will take large stakes, or 100% control, of distressed business and sell off speific assets/business units to raise capital it is certainly not true that this their only type of investments. By researching this market further you'll find some firms who specialise in this, whilst others may specialise in growing retail or telecom businesses, or can turn European businesses into global ones. On a final note it is worth saying that aset stripping is often perceived in a negative light but in fact it can be positive as it is a way for the business to raise fund, focus on its core strengths and survive/prosper.

It is a common misconception, often driven by media hype, that private equity investors ruthlessly generate outsize returns by squeezing, or even pulling apart / asset stripping a business. This is a largely unfair and a hugely unrealistic perspective of PE investments. Gone are the days of corporate raiders - whilst returns generated by PE funds can often be larger then the general public would perceive as fair, this typically does not occur any more. Between 2004 - 2008 or thereabouts, the PE industry, and indeed the financial services industry experienced a boom. Credit was cheap, and companies were underutilising many of their assets. As a consequence PE funds were able to do deals at valuations and multiples (both buying and selling) beyond levels they are able to now (2011).

PE funds historically have generated value by:
- Deploying businesses cash flow more effectively - this could be through borrowing capital against a businesses cash flow, acquiring the business, then using the capital as a base for growing the business

- Improving operations: Often older, cash generative (businesses that are cash businesses like food retailing businesses), businesses tend to be complacent. They continue to operate with relatively little growth, and relatively little pressure to grow. PE funds will have specialists in those industries who are experienced in turning complacent businesses into growing businesses

- Providing expertise: PE funds may simply attract or bring capabilities that a business didn't previously have

- Provide access to capital: PE funds may be able to provide access to capital that businesses may previously have not had access to

- Merger to exploit synergies: PE funds may often orchestrate relationships across businesses to improve the position of a business e.g. merge the 3rd largest and 5th largest business in a sector, creating the largest business in a sector

It is important to know that asset stripping is one method for generating value for a PE fund, but typically they are able to generate value as they are able to simply force a business to operate or use its assets more efficiently