What is a "back door" listing?

A “back door” listing occurs when a privately held company that does not meet the requirements for an initial public offering buys a company already listed on the stock exchange, circumventing the traditional route to becoming a publicly traded company, explains Investopedia. The strategy is sometimes called a reverse takeover.

The advantage of a reverse takeover for a privately held company is that the company gains instant inclusion on the stock exchange while spending less time and money to do so, states Investopedia Following the acquisition, the companies sometimes merge, but the purchasing company also has the option to form a shell corporation that lets each company operate independent of the other.