Why Back-Door Listing Companies Succeed In Diversification Strategies

In recent years, more and more enterprises that have not gone through IPO (off-site enterprises) have realized back-door listing through small-scale enterprises that have already been listed in KOSDAQ market. In particular, the purpose of most of these cases of back-door listing is to boost the realization of the strategy of business diversification while enjoying the positive effect of listing. However, quite different results of operation have occurred to the enterprises which seek for the strategy of business diversification through this kind of back-door listing. Therefore, this thesis attempts to explore the key factors for back-door listed enterprises to make success by carrying out the strategy of diversification.This thesis chooses the back-door listing and the strategy of diversification having been carried outby Hyundai Lifeboat (an unlisted enterprise) in recent years for case study. Aiming to realize its business diversification, this enterprise carried out back-door listing with the help of Hicel (a listed enterprise). What makes it different from other back-door listed enterprises is that Hyundai Lifeboat purchased many enterprises and industrial projects blessed with future growth potentials while carrying its business diversification after back-door listing. This enterprise can be regarded as having achieved a very obvious effect in the aspect of business growth at that time. In spite of this, this company fell into a very serious plight two years later. Then, why has not this enterprise achieved a sustainable growth in spite of having successfully realized back-door listing? This thesis attempts to make due exploration and analysis to this issue.First of all, this thesis analyzes and observes Hyundai Lifeboat's process of back-door listing and its process of promoting the strategy of diversification, and, by comparing the financial status before the back-door listing with that after it, analyzes whether this case enterprise has successfully carried out the strategy of diversification by means of back-door listing. Then, this thesis selects six enterprises which have achieved an obvious improvement in their actual performance from the group of enterprises as comparison targets, and makes a comparative analysis between these six enterprises and Hyundai Lifeboat (the case enterprise) according to the seven decisive factors (derived from the analysis of theoretical literatures) that affect the success of enterprises which carry out the strategy of diversification with the help of back-door listing thereby deriving the key factors for similar enterprises to make success by carrying out this kind of strategies in the future.In order to make a comparative analysis to the achievements of Hyundai Lifeboat, this thesis sets corresponding conditions for the group of enterprises as comparison targets namely, "the group of enterprises" mentioned here chiefly refers to enterprises which have been registered in the KOSDAQ market and which carried out back-door listing within about 6 months before and after Hyundai Lifeboat carried out back-door listing with the help of Hicel (from January 1 to December 31,2008). Of course, they exclude those having so far been delisted. A total of 31 enterprises meet the above-mentioned conditions. After selecting six of them whose performance has been obviously improved, this thesis compares the achievements of Hyundai Lifeboat with those of these six enterprises, so as to explore the key factors for back-door listed enterprises to successfully carry out the strategy of business diversification.This thesis derives the following conclusions by comparing the case of Hyundai Lifeboat with the enterprises as comparison targets:First, enterprises attempting to carry out the strategy of business diversification through back-door listing should have such capacities as technological innovation and timely commercialization. Therefore, to those enterprises intending to carry out the strategy of business diversification through back-door listing in the future, the most important thing is to boost their technological innovation with the help of research and development and continuously develop their new commodities in a timely manner in the wake of substantial sales.Second, in order to successfully boost their strategy of business diversification with the help of back-door listing, these enterprises should carry out properly-standard business diversification by first considering the original scale and stability of the listed enterprises.Third, to those enterprises which face such problems as listing lag and temporary financial difficulty because of their inadequate technical capacity or their inability to seek for future growth power, they should, while selecting target enterprises for back-door listing, choose back-door listing as a means capable of offering an outlet to these enterprises. Generally speaking, after back-door listing, those enterprises facing deadly problems in the aspect of sales volume or operating profit are very likely to undergo the worsening of their performance together with those excellent unlisted enterprises having carried out back-door listing.Fourth, selecting the means of merger for back-door listing appears more advisable than selecting the means of corporate investment (stock exchange).