The Bull

Tuesday 18

December, 2018 1:37 AM



DICTIONARY : A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Back door listing

What does it mean?

 

A company that fails to meet the criteria that dictate whether their shares are allowed on an exchange will overcome this problem by securing a back door listing. A back door listing is using a strategy to purchase a company that is already listed on an exchange, thereby allowing the acquiring company to enter the exchange via the “back door.”

 

Why might a company use a back door listing?

 

If a company has a lot of cash or very good credit, but for whatever reason cannot meet the requirements to go public, the company may instead choose to purchase a company that has already had success going public. Back door listings are not the most common kind of merger or acquisition, because if a company has the resources to purchase another public company, it is often able to meet the listing requirements of the exchange. Also, another drawback is because when using a back door listing strategy, the company doing the acquiring must then continue doing business in the name of the public company that they acquired rather than their own name.

 

Operating a back door listed company

 

Once a private company has successfully purchased a public company, it must then change operations to take place under the name of the newly acquired publicly listed company, as the name is technically the point of the purchase. One of the reasons a company would be willing to give up its name and spend a significant amount of money to obtain a back door listing is that filing costs for a public listing, as well as the regulatory costs, have grown to be high enough that simply buying a public company can be a more economical way for a private firm to begin trading publicly.

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