A take on the merger between DWAC SPAC and Truth Social

Author: Finscreener

Estimated read time: 3 minutes

Publication date: 10th Feb 2022 14:41 GMT+1

Digital World Acquisition Corp (NASDAQ: DWAC) is a special purpose acquisition company that announced a merger with Trump Media & Technology Group or TTMG last January. TTMG is a company founded by former U.S. President Donald Trump. It has two segments, namely a social media platform called Truth Social and a streaming service called TMTG+. 

Trump is counting on his extremely loyal fan base to propel this merger. Soon after the announcement, DWAC shares soared from $10 and closed at $45 for the day, up by over 300% in a single trading session. At the time of writing, the stock is trading at $83, up 700% in less than six months.

For being coined as an alternative to Twitter (NYSE: TWTR), it is believed that this platform might become extremely popular chiefly because of the enormous fan base of the former President and the platform’s “free speech” marketing angle. 


An analysis of the DWAC merger

On the day of the announcement, TMTG was a company with no capital structure, no financial statements, or projection of future revenues. But once it gets merged with DWAC, it will become a publicly-traded company. 

A SPAC or special purpose acquisition company is also called a blank check company. Here, an entity with no commercial operations completes an IPO (initial public offering). The SPAC (DWAC- in this case) then acquires or mergers with an already existing private company (TTMG) taking the latter public. Prior to the merger or acquisition, the SPACs do not reveal the company they plan to merge with or acquire. 

DWAC initially placed an enterprise value of $875 million on TTMG. But the latter has raised $1 billion via a PIPE (private investment in public equity) investment, elevating its value to $4 billion. 

TTMG will receive $292 in cash proceeds post its merger with DWAC. Due to the nature of the reverse merger, the PIPE investors and TTMG shareholders will own a majority stake in DWAC once the deal is completed. 

Moreover, the PIPE shareholders, upon closure, can purchase convertible preferred shares in the listed Trump Media for $1,000 per share.


Why is this merger taking place?

Former President Donald Trump, who had approximately 150 million followers across various social media platforms, was banned from using his social media accounts. Therefore, he wants to launch ‘Truth Social’ to communicate directly with his supporters and reclaim the Oval Office in the 2024 presidential elections. 

As per estimates, Truth Social will be able to lure 16 million users to its platform within the first year of its operations, thereby making the lives of rival platforms a lot more complicated. Moreover, the share of monetizable users is expected to go up to 5%, loosely translating to 0.8M paying users.


Are DWAC shares a buy right now?

It can be well contemplated that the launch of the Truth Social platform could positively influence the value of the DWAC stock significantly. Resulting from the huge excitement among a sizable number of Americans who continue to support the former president, DWAC stock has been one of the best-performing ones so far this year, gaining almost 85% year-to-date. 

However, it is indeed true that there are certain risks of uncertainty associated with this stock. For instance, there is still no assurance that the platform will function as intended and that the user growth over there will be as strong as it is being projected. So, though the stock looks very attractive at the present moment still, investors should proceed with caution.

DWAC is a pre-revenue company valued at a market cap of $3.1 billion.

Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.