Last Wednesday, Former US President Donald Trump announced the creation of his Media Company, Trump Media and Technology Group (TMTG) as well as its planned merger with Digital World Acquisition Corp (NASDAQ: DWAC).
Within four days, the NASDAQ-listed DWAC stock had grown by 740%. At the close of the Monday trading day (25/10/21), DWAC was trading at US $83.86. After-hours trading sees the stock up by 3.98% to US $87.20.
Arguable, DWAC price rise could be indicate it is the latest in a long line of ‘meme’ stocks, with retail traders ploughing into the stock for the sake of entertainment. Although, this might be a too-easy dismissal of Trump’s large popularity among Americans. He is, after all, the presidential candidate that garnered the second largest number of votes in US election history (after President Joe Biden, of course).
TMTG and DWAC would represent the only publicly-listed entity tied to Former President Trump (after the bankruptcy of Trump Hotel & Casino (NYSE: DJT)), and thus, demand from his supporters might be in line with DWAC’s price rise.
TMTG is planning several launches over the next year. The first and perhaps most grandiose undertaking is a social media platform called TRUTH Social, set to be released at the start of 2022. It is unknown whether the platform will be based on Facebook (NASDAQ: FB), Twitter (NYSE: TWTR), or YouTube, all of which are sharing platforms that have banned the former Presidents profiles. As can be gleaned from Trumps Statements, Truth Social will likely imitate the likes of Twitter, with short, pithy Tweet-like posts referred to as TRUTHS.
Founded in 2020 and based out of a shared WeWork (NYSE: WE) office in Miami, DWAC is a Special Purpose Acquisition Company (SPAC) listed with the goal to merge with a US technology, fintech, or financial services business. DWAC is controlled by the founder of Benessere Investment Group, Patrick F. Orlando, and Luiz Philippe de Orleans e Braganca, a businessman and member of the National Congress of Brazil.
Orlando, acting as DWAC’s CEO, is a former derivatives trader at Deutsche Bank (ETR: DBK) and serial SPAC lister. While Orlando has launched four SPACs, raising hundreds of millions of dollars in the process, he has failed to push any of them over the line and complete a merger. With the stock price rally of DWAC, Orlando’s chances of achieving a SPAC merger are looking more probable than ever.
DWAC has already generated its fair share of criticism for scant financial details and planning. Kristi Marvin, chief executive of SPAC Insider, notes, “We don’t know how they got to the valuation. We have no information … That’s the fundamental problem.”. DWAC merger deal with TMTG values it at US $875 million.
This year, a word that has entered the vocabulary of many investors is SPAC, short for Special Purpose Acquisition Company. Yet, for some, what a SPAC exactly is and for what it is suitable, remains a mystery.
I find it helpful to understand SPACs by breaking them down into bullet points:
The advantages SPAC’s provide are twofold. One advantage is for the SPAC sponsor, and the other is for the owners of the unlisted companies with which the SPAC mergers.
Since emerging in the 1990s, SPACs have primarily remained a fringe financial product. That is, until last year when their popularity exploded in the US.
In 2020, SPACs raised more than US $82 billion. Not to be outdone, 2021 eclipsed this value by April and has since gone on to raise more than US $120 billion. In contrast, SPACs raised a comparatively tiny US $13.6 billion in 2019.
According to Skadden, the rise in SPACs is due to recently enhanced investor protections and famous financial figures associating themselves with the investment vehicle. Names that have been associated with SPACs in the past couple of years include Bill Gates and Richard Branson, as either SPAC sponsors (Branson) or stakeholders in companies that have merged with a SPAC (Gates).