Once a booming strategy for taking companies public, the Special Purpose Acquisition Companies (SPAC) momentum has died down from its 2020 and 2021 highs. However, presidential nominee Donald J. Trump could receive a massive payout from a recently approved merger with his social media platform, Truth Social.
With a stake worth around $4.6 billion, this could change the nominee’s financial capabilities for navigating his legal troubles and managing his campaign.
SPAC, also known as blank check companies, are companies that don’t have any commercial operations and are formed to raise capital through an initial public offering (IPO) so that they may acquire or merge with an existing company.
They have become popularly used in transactions where a private company is transitioning into a publicly traded company. However, controversy has surrounded the practice as many investors were taking significant losses and running into issues.
Including a lack of visibility into a company’s accurate projections, the high costs associated with listing an SPAC and the dilution of shareholder value.
In January, the SEC adopted rules to enhance investor protections related to investment vehicles and entities like it.
Though Chair Gary Gensler has been very critical in the past, he said in a statement, “I am pleased to support these final rules because they will better align the protections investors receive when investing in SPACs with those provided to them when investing in traditional IPOs.”
For a brief time, this investment vehicle powered more than half of Wall Street’s IPO activity. According to Statista, there were 248 and 613 SPACs of the 480 and 1,035 total IPOs in 2020 and 2021, respectively.
Whether it’s interpreted as favorable interest rates or positive sentiment across multiple sectors and markets, there is no doubt that many corporations were taking advantage of this financial method.
The social media site is run by Trump Media & Technology Group (TMTG), which Trump owns about 60% of. Founded by the former president in 2021, the company then created a product that would serve as a consumer’s alternative to Twitter or Facebook and provided Trump and the many followers that align with him an outlet to communicate to the world given his ban from Twitter in 2021.
After Shareholders of Digital World Acquisition Corp. (DWAC) agreed to merge with TMTG, the SPAC’s stock subsequently increased in value by 40 percent and closed at $49.99 per share prior to the debut.
Under the stock ticker DJT, the company opened on the NASDAQ this past Tuesday and has seen a fair mix of ups and downs with the stock reaching a high of $79.38 on the week before settling down to $61.96.
The volatility in the stock could be explained by the combination of unfavorable financials and unwavering demand from investors and traders who want to see him succeed or want to benefit from the sharp price increases.
With revenue of $3.6 million, DJT has a tiny impact relative to a few of its well-established peers yet has been reaching astonishing valuations.
Due to its volatility and the company being among the top trending stocks to trade on the market, we may see trading halts in the near future, a characteristic many active investors have seen in so-called “meme stocks.”
Overall popularity and support for the presidential nominee could boost the stock enough to lift his stake above its original valuation of $5 billion, who could require financial assistance in the coming future. Trump, who is a leading Republican candidate in the 2024 U.S Presidential election, has been combating a number of cases against him including a financially crippling civil fraud case.
On Feb. 16, Judge Arthur Engoron ordered former President Trump to pay a $454 million penalty which includes interest, following a lawsuit brought upon by New York Attorney General Letitia James that he allegedly committed fraud by incorrectly reporting the value of his assets in order to get better loans.
James said, “While he may have authored the ‘Art of the Deal,’ our case revealed that his business was based on the art of the steal.”
Trump and his lawyers have claimed that they have been unable to secure a bond for the penalty and have been denied by numerous companies and brokers. On March 25 however, a New York appeals court agreed to give him 10 days to pay $175 million to prevent the seizure of his assets during his appeal process.
“We’ll put up the cash or a bond very quickly,” Trump said to reporters this past Monday. His financial situation may begin to clear up on the legal side and with a possible cash out within the next six months, money will play an even bigger factor in this year’s election decision.
Brandon Peterson is a finance major with an interest in macroeconomics and business activity in the public/private markets.
Copy edited by Alana Matthew
