What is a Back Door Listing
A back door listing is a strategy of going public used by a company that fails to meet the criteria for listing on a stock exchange. To get onto the exchange, the company desiring to go public acquires an already listed company.
BREAKING DOWN Back Door Listing
If a small private firm doesn't have the resources or doesn't meet the requirements to go public, they might purchase a public company. To do this, the private company would need to have a lot of cash on hand or be able to take out the loans necessary to purchase the public company. A back door listing is atypical of most acquisitions or mergers because the acquiring company in a back door listing will start doing business under the target's name.
Example of Back Door Listing
For example private company XYZ purchases public company ABC. XYZ will fold itself into ABC and start doing business under ABCs name since this public company operating shell is essentially what XYZ has purchased. XYZ now trades as ABC on the exchange and owns everything that is a part of ABC. Regulatory and filing costs have become so prohibitive in the last several years that sometimes purchasing a public company can be a cost-effective way for some private firms to go public.