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Donald Trump’s SPAC foray is a boost for the asset class

  • Trump Media & Technology Group is planning to merge with DWAC, a SPAC

  • DWAC has risen more than eightfold on the news

  • But investors should focus on SPAC fundamentals, as opposed to meme-type opportunities. AGC US is our top pick

Donald Trump’s SPAC foray is a boost for the asset class
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

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Tellimer Research
25 October 2021
Published byTellimer Research

Former President Donald Trump has joined the SPAC bandwagon. Last week he announced that his new venture Trump Media & Technology Group (TMTG) would merge with Digital World Acquisition Corporation (DWAC), a SPAC that raised US$293mn last month on the NASDAQ with investors including top hedge funds such as DE Shaw, Saba Capital and Highbridge.

DWAC has risen almost 850% on the news, with its share price shooting up from US$10 to a high of US$175, before closing on US$94.20.

Price Performance: DWAC US

DWAC is promoted by Patrick Orlando, a financier based in China. Orlando was previously a derivatives trader with Deutsche Bank. Orlando has raised a SPAC before, Yunhong International, that was focused on China.

TMTG, Trump’s media venture, boldly seeks to rival social media giants like Twitter and Facebook with its soon-to-be-launched platform TRUTH Social. Trump’s success as a politician has derived from his mastery of social media, but since the 6 January mob attack on Capital Hill, many of the biggest social media companies have sought to ban Trump from their platforms.

Irrespective of the hype around the DWAC SPAC, investors should focus on the following three factors:

1. Meme-stock euphoria could drive DWAC’s performance. It is striking that the announcement of a reverse merger with a company with no revenues or operations could drive a SPAC price higher. The DWAC surge underlines the enduring power of the Trump brand.

2. There are other SPACs with tenuous connections to Trump or social media that could rise sharply. Social media linked SPACs include Vistas Media Acquisition Company Inc. (Anghami), 890 5th Avenue Partners, Inc. (BuzzFeed), and DD3 Acquisition Corp. II (Codere Online), etc. The development is short in the arm of the SPAC sector that has been under pressure for nearly six months, partially driven by the tech crackdown in China.

Price Performance: SPAC Index

SPAC issue in 2021

3. Investors should not get carried away by the hype. Instead, the fundamental case for certain SPACs needs to be assessed. Our top pick is AGC US, the SPAC that Grab Inc. is merging with. This is the largest SPAC deal in history and Grab is the main tech player in ASEAN.

AGC US is down 28% since the Grab deal was announced. In our view, this is not a reflection on Grab’s fundamental prospects, but a sell-off linked to SPAC fatigue.

Price Performance: AGC US

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