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Trump’s Deal-Making Abilities Put to the Test Again With SPAC Deal

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Oct. 22 2021, Published 9:27 a.m. ET

Digital World Acquisition (DWAC) looks set to take former president Donald Trump’s TMTG (Trump Media and Technology Group) public. What’s the forecast for DWAC stock after its rise on Oct. 21?

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SPACs have again overshadowed traditional IPOs in 2021 and are headed for another record year. Whereas many of them are trading below their SPAC IPO price of $10, DWAC closed at $45, 350 percent above its IPO price, on Oct. 21.

DWAC stock surges on merger news

DWAC stock surged after news of its merger with TMTG. The stock was trading as high as $75 in after-market hours but pared some of its gains in premarket trading, falling to $70.

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The only other instance that comes to mind of a SPAC surging above $50 before its merger is the Churchill Capital IV (CCIV) and Lucid Motors merger. Lucid now trades at less than half of its peak.

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The only way CCIV stock's steep rise could have been justified would have been if Lucid Motors had agreed to a very low valuation. Because this didn't happen, CCIV tumbled after its merger with Lucid was announced.

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DWAC stock's forecast

DWAC and CCIV share some similarities. Little was known about Lucid Motors when it was rumored to be merging with CCIV. All we know about the DWAC-TMTG merger is the absolute valuation.

According to TMTG, the deal would value the company “at an initial enterprise value of $875 million, with a potential additional earnout of $825 million in additional shares (at the valuation they are granted) for a cumulative valuation of up to $1.7 billion depending on the performance of the stock price post-business combination.” The company is set to get $293 million in gross proceeds.

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However, as we don’t TMTG's financials yet, it's tough to comment on its valuation. DWAC stock's steep rise suggests that either Trump undervalued TMTG in the merger talks or markets are too euphoric on the business combination.

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TMTG's valuation

Trump has never been modest about his “deal-making abilities.” To his credit, during his tenure, he managed to renegotiate NAFTA and get some Middle Eastern countries to recognize Israel.

However, if the markets are correct and the rise in DWAC stock is justified, it would mean Trump underappreciated the value of his business. And if Trump got a fair value for TMTG, it means the markets have reacted irrationally.

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DWAC stock's long-term price prediction

The launch of Trump’s TRUTH Social network could disrupt the industry, as most social media networks are liberal and don't suit all conservative users. However, there's still a lot of room for things to go sideways. It may be best to stay on the sidelines for some time before investing in DWAC.

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