Institutional strip meaning

In private equity buyouts, an institutional strip is the package of instruments subscribed for by the fund investor, combining equity and shareholder debt issued by the acquisition vehicle (usually the parent/topco). It is market terminology rather than a term defined by legislation or case law, and is used consistently across England & Wales, Scotland, Northern Ireland and Ireland. Typically, the strip comprises preferred ordinary shares (often “A” ordinary shares) and redeemable preference shares and/or subordinated loan notes or shareholder loans (sometimes PIK). These instruments sit below senior and mezzanine debt but ahead of management’s ordinary equity on dividends, redemption and return of capital, and on a sale or winding up, pursuant to constitutional documents and intercreditor/subordination arrangements. In an MBO or leveraged buyout, the private equity investor commonly incorporates a new holding structure (topco/midco/bidco) to acquire the target; the institutional strip is issued by the parent company. Management subscribe for a separate class of ordinary shares (often “sweet equity”) with different rights and economics. The institutional strip is used to calibrate risk/return, provide priority economics and downside protection, and can support tax-efficient funding. Specific rights (for example, consent, information and anti‑dilution), ranking and terms vary by deal and, in some cases, by...