Back Door Listing

A back door listing, aka a reverse initial public offering (IPO), aka a reverse takeover, aka a reserve merger (still with us?) is when a company takes the back door to be included on a stock exchange by buying an already publicly traded company. They either merge with this other company, or create a shell corporation that both companies fall under.

To be included on a stock exchange, most companies use the front door, which means going through the IPO process. But companies that don't qualify for an IPO, or don't want to go spend the time and money an IPO process takes, say, "shut the front door" and merge their way into the stock exchange through the back door.

If it sounds sketchy, that's because it kind of is. While totes legal, many investors give the cold shoulder to back door listings, since they see them as too weak to make it through an IPO. It's kind of like the principal's kid making the kickball team without trying out—just because he's the principal's kid. From lack of skill and resentment from the other kids on the team, you know he's going to get a ball (or two) in the face until he proves himself worthy.