Backdoor Listing

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Is Backdoor Listing for You?

Many business owners are thinking of exiting their businesses in the next few years as the baby boomer generation reaches retirement age.  They wish to realise the value of the equity in their business. The question many of them ask is “how can I exit at a fair price?”.  Perhaps a backdoor (or reverse) listing is the answer?

Traditionally, most exits have been through trade sales but, with business confidence at an all time low, many business owners are holding off making acquisitions preferring to retain cash balances above normal levels and to keep open their borrowing capacity to cope with any unexpected events. This includes the possibility of a double dip recession which could result from a slowdown in China (as they try to address their property bubble) or a reversal of the slow economic recovery in USA, which cannot afford another stimulus with a budget deficit of around 10% of GDP (although the government has discussed more quantitative easing i.e. effectively just printing money).

Historically, a preferred exit for many company owners has been an IPO. However, the share markets in Australia and overseas are not very receptive to IPOs at the moment although market makers are talking the industry up a little.

Companies in the US are raising less capital this year from IPOs than at any time in at least a decade. Private Equity firms are having to buy and sell assets between themselves as IPOs prove difficult to achieve (see AFR article).

Another alternative that might be considered is a backdoor (or reverse) listing. This involves finding a company shell either with a very low market capitalisation or that has been in some form of administration. These companies can then effectively be taken over (in practice the listed company does the acquiring by issuing it’s shares to the other company’s shareholders) which provides listed shares to the company’s owners that can be sold down over time.

Backdoor listings can provide a cost effective exit strategy and are more common than most people think.  There have been some negative connotations to this perfectly legitimate process but on the whole they are perfectly legal and proper.  They have the benefit of providing an exit when the business might not meet all the criteria to list on a stock exchange in its own right and it can avoid much of the expensive public offering process.  So long as the price is right, due diligence is performed and the right stock exchange is chosen, backdoor listings can be completed relatively quickly and provide a fast exit for a business owner.

Put simply, the benefits include increased liquidity, ability to raise additional capital, save time and save money.??  Do you understand your how to backdoor list your business? Would a back door listing be right for your business? Would you like our help? Please call on +61 2 9258 1972 or go to our Contact page.

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