Much to everyone’s surprise, President Donald Trump’s company Trump Media & Technology Group announced that it’s merging with Digital World Acquisition Corp (DWAC), a Special Purpose Acquisition Vehicle. The SPAC which was trading at around $10 per share before the announcement reached over $100 per share. The stock remains highly volatile and there are numerous speculations whether it’s undervalued or overvalued.
Usually, blank check companies – or SPACs – are hard to assess because they are publicly traded funds without any underlying assets or business operations. SPACs are not new vehicles. People with a substantial track record of building a company have launched SPACs in hopes of acquiring a private company and merging with their SPAC. In the past few years, SPACs have become a popular form of vehicle for entrepreneurs to acquire a company. The optimism is further fueled due to the massive social media following these entrepreneurs have. These followers are mostly retail traders whose combined trading volume moves the market these days. There are many motivations to set up a SPAC but one of the top reasons is to provide liquidity to other owners/founders of a private company. It also significantly reduces the deal underwriting time and saves expenses.
Influencer Focus
The influencer model in the advertisement has existed for a long time. While it wasn’t very common for a Hollywood actor to advertise what rice brand you should eat, it’s pretty common in other parts of the world for movie actors to advertise every household product including soap, oil, clothing, phone, detergent, beauty cream etc. After the rise of social media – especially after influencers started getting millions of followers – the concept of influencer advertisement became more common. Because of their following on various technology platforms, influencers are able to sell their own products or endorse brands and earn money. Virtually every consumer-focused startup has some plans to use influencer marketing to get customers.
Donald Trump is not an ordinary influencer though. He does not need to “sell” anything to his followers; most are already sold to whatever he says. There lies the power of consumer marketing. Millions of buyers are willing to buy almost anything. This presents a great opportunity for the Trump SPAC to build a great business, especially in tech where vertical integration could be comfortably achieved.
Target companies without many differentiators
Forget about social media. There are several companies that have no differentiators. For example, do you really care where you bank? Bank of America, Wells Fargo, Chase? No. It’s because they all offer nearly identical services. These are some of the areas that the SPAC could do very well. Imagine acquiring or building assets such as banking app, money transfer app, stock trading app, and cryptocurrency apps. There is virtually no difference between fintech/banking apps. You are as likely to open a bank account with Wells Fargo as with Mercury. Traders are okay using Robinhood, Public, Coinbase, Fidelity, and Binance. There are just too many apps that function virtually similarly. It’s a matter of UX and brand advertisement. Luckily, UX is easy to design these days and Trump won’t incur user acquisition costs.
Imagine a Trump-branded Android phone. Smartphones are commodities these days. While testing an app in Xiaomi RedMi Note 10, I found the phone way superior to my latest iPhone. Although I have been a user of the iPhone for the past 13 years, Xiaomi clearly showed how much of a commodity phones have become. Then I found another Android phone, Umidigi. It was half the price of Xiaomi and almost the same as Xiaomi. The point is that phones are merely a brand now with nearly identical features. It’s a large market that Trump SPAC can tap into.
Digital news is another avenue. Considering Mr Trump’s experience with the media, he might even do it. Imagine a $99/year news subscription website!
Most tech companies are trying to sell storage. Is there much difference between Google Drive, Box, Dropbox, iCloud, and OneDrive? How likely are users to use a new storage service? Can the same person behind the wheels who drives for Uber and Lyft at the same time also drive for another company? Can a customer who is insured with GEICO or Progressive switch to a new insurance company? Can a Zoom or Google Meet user use a new product for online meetings? Can restaurants that partner with nearly every online food delivery company also partner with a new app? Indeed it’s possible.
Let’s pretend for a moment that DWAC fails to launch or acquire all the cool tech apps listed above (which is unlikely). Can DWAC sell subscriptions for shirts, socks, hats, jeans, and diapers? As long as Mr. Trump’s company sells a product or service that has the least differentiator to products that consumers are used to, Mr. Trump can sell almost anything that has his name or endorsement. That in itself could be several billions of dollars or more in revenues.
Whether a SPAC is undervalued or overvalued is not easy to determine. As is the case with most SPACs, DWAC’s real value will be created or not created by its leadership team. DWAC might be substantially undervalued if the leadership is planning to grow the business either by in-house tech development or acquisitions and quickly consolidate businesses that do not have substantial differentiators.
Related: The Dawn of Disruptions