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 can average investors get involved in an IPO?

    An initial public offering, or IPO, is the first sale of stock by a new company, usually a private company trying to go public. ...
  2. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ...
  3. A cash buyout agreement has been announced for a stock I own, but why isn't my stock ...

    The announcement of an acquisition or a merger does not necessarily mean that the deal will be resolved as originally stated. ...
  4. What is the downtick-uptick rule on the NYSE?

    To ensure orderly markets, the New York Stock Exchange (NYSE) has a set of restrictions that it can implement when experiencing ...
RELATED TERMS
  1. Roll-Up Merger

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

    The legal requirement that a company’s board of directors make ...
  3. Business Consolidation

    The consolidation of several business units or several different ...
  4. Golden Bungee

    A benefit conferred to select top executives that is a combination ...
  5. Management Buyout - MBO

    A transaction where a company’s management team purchases the ...
  6. Unbundling

    The process of taking over a large company with several different ...
comments powered by Disqus
Related Articles
  1. 4 History-Making Wall Street Crooks
    Personal Finance

    4 History-Making Wall Street Crooks

  2. Pages From The Bad CEO Playbook
    Retirement

    Pages From The Bad CEO Playbook

  3. The Rise Of The Modern Investment Bank ...
    Insurance

    The Rise Of The Modern Investment Bank ...

  4. Stock Market Simulators: Play Your Way ...
    Investing Basics

    Stock Market Simulators: Play Your Way ...

  5. The Uptick Rule Debate
    Active Trading Fundamentals

    The Uptick Rule Debate

Trading Center