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.

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  1. Back Door Listing

    A strategy of going public used by a company that fails to meet ...
  2. Reverse Takeover - RTO

    A type of merger used by private companies to become publicly ...
  3. Primary Listing

    The main stock exchange where a publicly traded company's stock ...
  4. Offering

    The issue or sale of a security by a company. It is often used ...
  5. Listed Security

    A financial instrument that is traded through an exchange, such ...
  6. Mergers And Acquisitions - M&A

    A general term used to refer to the consolidation of companies. ...
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