Backdoor Listing - Explained
What is a Backdoor Listing?
Written by Jason Gordon
Updated at July 9th, 2021
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Table of Contents
What is a Backdoor Listing?How does a Back Door Listing Work? Example of Back Door ListingAcademic Research on Back Door ListingsWhat is a Backdoor Listing?
A back door listing can be described as a strategy adopted by unlisted companies in which these companies merge with companies already listed on public exchange. When a company tries to get into the exchange listing without an Initial Public Offering (IPO), this is regarded as a backdoor listing. Failure for companies to meet certain criteria can deprive them of listing on a stock exchange. However, in a bid to get onto the exchange, some of these companies acquire or merge with companies already listed on the stock exchange. This is regarded as going through the back door, otherwise called back door listing.
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How does a Back Door Listing Work?
Back door listing is often practised by companies who do not meet the requirements to be listed on a stock exchange, in most cases, these companies are private firms with insufficient resources and qualities. After many failed attempts to get onto stock listing, these companies decide to use the back door to meet the requirements which is usually by acquiring or merging with listed companies. For an unlisted company to acquire or merge with a listed company, enough resources are required, in cases of insufficient funds, a private or unlisted company can acquire enough loans to purchase the listed (public company). Mergers or acquisitions are features of back door listing.
Example of Back Door Listing
Back door listing can also be called reverse takeover, reverse IPO, or reverse merger. The illustration highlighted below is an instance of back door listing. If Company A (an unlisted company) does not meet the requirements to go public or get listed on stock exchange, it can merge with or acquire Company B (a listed company) so that it will go public. Once the acquisition process is complete, Company A begins business or operations with Company B, this means Company A can trade as a part of Company B, hence, since Company B is listed, the merger would change Company As status to becoming a listed company as well. However, for a public (listed) company to be merged with an unlisted company, it is an indicator that it is weak or at the verge of going under.
Academic Research on Back Door Listings
- Choice between alternative routes to go public: Backdoor listing versus IPO, Brown, P. R., Ferguson, A., & Lam, P. (2010).
- Research on Legal Risk Control of Back-door listing, Lei, Z. (2011). Journal of Anhui Vocational College of Police Officers, 3, 003.
- Back-door Listing of Chinese Securities Companies: Pattern, Cost and Return [J], Jianhuan, H., & Zhujia, Y. (2007). Securities Market Herald, 7, 007.
- Pros and cons of conventional versus back door listing on ASX, Mansfield, J. (2012). Keeping Good Companies, 64(5), 266.
- The Reverse Take-over of Berjaya Textiles and Back-door Listing of Jaya Tiasa: A Malaysian Case, Wan-Hussin, W. N. (2002).
- Backdoor Non-Competes in Texas: Trade Secrets, Lee, T., & Debba, L. B. (2004). Mary's LJ, 36, 483.
- Organizational gossip: A revolving door of regulation and resistance, Hafen, S. (2004). Southern Journal of Communication, 69(3), 223-240.
- Listing Chinese Enterprises in Hong Kong and China's Intergovernmental Fiscal Relations, Shu-Yun, M. (2003). Problems of Post-Communism, 50(6), 28-37.
- From ABAC to ZBAC: the evolution of access control models,Karp, A. H., Haury, H., & Davis, M. H. (2010). Journal of Information Warfare, 9(2), 38-46.
- The role of foreign trade and investment in China's economic transformation, Lardy, N. R. (1995). The China Quarterly, 144, 1065-1082.
- Direct overseas listing of Chinese enterprises: A clear regulatory framework and explicit regulatory requirements are needed, Yi, L. (2010). Journal of Securities Operations & Custody, 3(3), 252-267.