Are back door listings the easier alternative?

In considering potential avenues for achieving a listing on a stock exchange, a concept that is commonly promoted is that of a ‘back door listing’.  This is particularly so given that the number of initial public offerings (IPOs), or ‘front door listings’, has declined significantly and companies are seeking alternatives for taking the next step to become a publicly listed company.

A back door listing can take a number of forms, but typically involves a listed entity (that has often wound down its operations and is subject to a suspension of trading in its securities) acquiring an unlisted entity or its assets and in exchange issuing shares in the listed entity to the vendors.  The shareholders in the unlisted entity will usually control the listed entity following completion of the back door listing.

Back door listings are often promoted as a cheaper and quicker route to achieve a listing.  This is not necessarily the case and, for a listing on ASX, the requirements set out in Chapter 11 of the Listing Rules can result in costs and timing pressures that may be greater than those experienced for an IPO.  At the discretion of the ASX, this may include having to obtain shareholder approval and, potentially, having to re-satisfy the admission requirements (e.g. by requiring a prospectus), becoming a ‘de facto IPO’. 

Some of the key advantages and disadvantages are highlighted in the attached tables.

Although a back door listing may be appropriate in some circumstances, the process should be treated with care, appropriate due diligence on the listed entity should be conducted, and the board and owners of the unlisted entity should consider whether an IPO may be the better way to achieve a listing.