What is Backdoor Listing?
Backdoor listing refers to a non-listed company acquiring controlling shares of an already listed company (shell company) through methods such as acquisition or asset replacement, thereby utilizing the listed status of the shell company to enable the parent company's assets to go public.
In simple terms, it means a non-listed company uses a listed company as a "shell" to enter the capital market for equity financing and other capital activities, which is the core motivation behind backdoor listing.
As we know, besides raising funds through Initial Public Offering (IPO), listed companies can also quickly raise capital by issuing additional shares. However, for many companies, going public directly through IPO is very difficult due to: 1) stringent approval requirements for financial indicators and corporate governance standards; and 2) the lengthy time cycle of IPO, which many rapidly growing companies cannot afford to wait. Hence, backdoor listing becomes a favorable alternative.
Below we will detail the methods and cases of backdoor listing:
I. Methods of Backdoor Listing
For backdoor listing, the first step is to select a target shell company, followed by a series of evaluations to choose an appropriate plan. The common methods include the following two:
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Equity Acquisition: This is the most common method. The acquirer and the major shareholder of the shell company, on the basis of equality, voluntariness, equivalence, and compensation, agree to transfer control at a certain price.
For example, acquirer Company A signs an agreement with the controlling shareholder of shell company B, where the controlling shareholder transfers the majority of shares (e.g., over 51%) of Company B to Company A at a certain price.
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Asset Replacement: The backdoor listing company replaces all or most of the assets of the shell company with its own high-quality assets.
For example, backdoor listing Company A has profitable assets in emerging industries, while shell company B has traditional, underperforming manufacturing assets. After asset evaluation, the two parties exchange assets of equivalent value, injecting Company A's high-quality assets into Company B while剥离Company B's original assets. This way, the actual surviving enterprise becomes backdoor listing Company A.
II. Classic Cases of Backdoor Listing
Many industry leaders have gone public through backdoor listing, which has accelerated their development, making them classic cases.
S.F. Holding's Backdoor Listing of D Tai New Materials
Before backdoor listing, the courier industry was highly competitive, and S.F. needed substantial funds to capture the market. D Tai New Materials was a metal products company with average performance. S.F. injected 100% of its equity into D Tai New Materials,剥离the latter's original assets, and changed the company name to S.F. Holding. After backdoor listing, S.F. used the funds to build intelligent logistics and warehousing centers, enhancing brand recognition and consolidating its position as an industry leader.
360's Backdoor Listing of Jiangnan J捷
Qihu 360 is an internet security service company that needed significant funds for technology R&D and market expansion. Jiangnan J捷was an elevator manufacturer with poor operating performance. Through asset replacement, 360 injected its main assets into Jiangnan J捷, while剥离the latter's original elevator business assets. After backdoor listing, 360 not only gained financial support but also provided strong backing for subsequent business development and strategic布局.
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