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.
Related or Semi-related Video
Finance: What is an IPO?25 Views
And finance allah shmoop What is an i p o
Well this is a hippo and it has nothing to
do with an ipo Auras Normal humans pronounce it if
both well actually most people just spell it out I
po It stands for initial public offering In the three
words tell the story and i pl refers to a
company who's raising money by selling shares of itself to
the public for the first time a maiden voyage in
public funding if you will Whatever dot com has forty
million shares outstanding after three private rounds with venture capitalists
and private investors it wants to raise money to go
big internationally And for the first time it will offer
shares to joe and jill public And that means that
all of it shares will be tradable publicly on the
open market like on nasdaq or the new york stock
exchange That is the insiders early investors founders et cetera
will be able to just call their broker at schwab
or fidelity or wherever and sell their shares get liquid
and buy themselves a maserati because it's not what everyone
does after a nice meal So whatever dot com sells
ten million shares a twelve bucks each to raise one
hundred twenty million dollars which they can spend to build
out offices all over the world So yeah that's an
ai po and that's Why a company generally wants to
make shares available to the public because once you've made
an initial public offering and you make money off the
sales of your stock you khun by as many hippos
as you like and just remember to feed them three
times a day they get Cranky if they go too 00:01:35.158 --> [endTime] long in between No
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