What is a back door listing?

By Justin Bynum AAA
A:

A back door listing, sometimes referred to as a reverse takeover, reverse merger, or reverse IPO, occurs when a privately-held company that may not qualify for the public offering process purchases a publicly-traded company.

By undertaking a back door listing, the privately-held company avoids the public offering process and gains automatic inclusion on a stock exchange. Following the acquisition, the acquirer may merge both companies' operations or, alternatively, create a shell corporation that allows the two companies to continue operations independent of each other.

Although rare, a private company sometimes will engage in a back door listing simply to avoid the time and expense of engaging in an initial public offering (IPO). For example, Archipelago Holdings acquired the New York Stock Exchange (NYSE) via a back door listing in 2006. A back door listing usually indicates significant weakness in the acquired company and serves as a warning sign for investors to be wary.

For more on this topic, read Mergers and Acquisitions: Definition.

This question was answered by Justin Bynum.

RELATED FAQS

  1. How is a penny stock created?

    Understand how penny stocks are issued and regulated, and learn how these sometimes rewarding but always risky investments ...
  2. In an IPO, who is a greensheet distributed to and for what purpose?

    One of the most talked about documents that arises in the process of introducing a new issue is the greensheet. This is an ...
  3. What exactly is being done when shares are bought and sold?

    Most stocks are traded on physical or virtual exchanges. The New York Stock Exchange (NYSE), for example, is a physical exchange ...
  4. Why do share prices fall after a company has a secondary offering?

    The best way to answer this question is to provide a simple illustration of what happens when a company increases the number ...
RELATED TERMS
  1. Asset Valuation Review (AVR)

    A process that establishes an estimate of the value of a failed ...
  2. Assisted Merger

    The merger of two or more financial institutions undertaken with ...
  3. Assuming Institution

    A healthy financial institution that purchases the assets of ...
  4. Acquisition

    A corporate action in which a company buys most, if not all, ...
  5. Roll-Up Merger

    A rollup (also known as a "roll up" or a "roll-up") ...
  6. Revlon Rule

    The legal requirement that a company’s board of directors make ...
comments powered by Disqus
Related Articles
  1. The Biggest Mergers & Acquisitions In ...
    Investing Basics

    The Biggest Mergers & Acquisitions In ...

  2. How To Profit From Mergers And Acquisitions ...
    Investing Basics

    How To Profit From Mergers And Acquisitions ...

  3. Charging Bull-The Brass Icon of Wall ...
    Investing Basics

    Charging Bull-The Brass Icon of Wall ...

  4. Alibaba's Goal: Supplant eBay, Amazon ...
    Stock Analysis

    Alibaba's Goal: Supplant eBay, Amazon ...

  5. War's Influence On Wall Street
    Bonds & Fixed Income

    War's Influence On Wall Street

Trading Center