Choice between Alternative Routes to Go Public: Backdoor Listing versus IPO

39 Pages Posted: 29 Jul 2011

See all articles by Philip R. Brown

Philip R. Brown

UWA Business School, M250; Financial Research Network (FIRN)

Andrew Ferguson

University of Technology, Sydney - Discipline of Accounting; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

Peter Lam

University of Technology, Sydney - Discipline of Accounting; Financial Research Network (FIRN)

Date Written: July 30, 2010

Abstract

This paper examines the decision of private firms to go public through two alternative routes – IPO vs. backdoor listing (BDL). The latter involves a sequence of structured inter-company events by which a private firm achieves a listing status by undertaking a reverse takeover of a publicly-listed firm and using the corporate shell of the listed entity as a vehicle to go public. By pooling samples of BDL and matched IPO firms together in a logit regression framework, this paper presents and tests a choice model based on the importance of firm characteristics and deal-level variables as differentiating factors in the choice between alternative routes. Results indicate that BDL firms are more heavily concentrated in the high-tech sectors and are less liquid, less profitable and more at a development stage than their IPO counterparts. Contrary to common belief, BDL transactions generally take a longer duration to complete than IPOs. In addition, BDL transactions are associated with more cashing-out activity and lower retained ownership by private firm owners (i.e., more sell down). BDL firms also raised smaller proceeds than their IPO counterparts at the consummation of the deal and are less likely to engage the service of an underwriter. Nevertheless, no significant difference in the degree of underpricing (first-day return) between the matched BDL and IPO sample can be established.

Keywords: IPO, backdoor listing, going public, reverse takeover

Suggested Citation

Brown, Philip R. and Ferguson, Andrew and Lam, Peter, Choice between Alternative Routes to Go Public: Backdoor Listing versus IPO (July 30, 2010). Available at SSRN: https://ssrn.com/abstract=1897816 or http://dx.doi.org/10.2139/ssrn.1897816

Philip R. Brown

UWA Business School, M250 ( email )

Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Andrew Ferguson

University of Technology, Sydney - Discipline of Accounting ( email )

P.O. Box 123 Broadway
Sydney, NSW 2007
Australia
02 9514 3565 (Phone)
02 9514 3669 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Peter Lam (Contact Author)

University of Technology, Sydney - Discipline of Accounting ( email )

P.O. Box 123 Broadway
Sydney, NSW 2007
Australia
02 9514 3926 (Phone)
02 9514 3669 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Register to save articles to
your library

Register

Paper statistics

Downloads
1,042
Abstract Views
3,759
rank
20,151
PlumX Metrics