Special purpose acquisition companies have made the jump from arcane Wall Street tool to celebrity investment vehicle in the past year, with the likes of Colin Kaepernick and Jay-Z signing on amid market euphoria.
Now speculation is growing that former President Donald Trump is about to harness his populist political movement and global recognition to become the latest big name to join the trend.
A Florida-based investor, who is considering asking the former president to join his venture, told the Washington Examiner he would be a natural fit.
“Amazing promoter and showman. While his involvement might alienate some, it would also motivate others,” he said. “And you also get his input — a lifetime of experience, both good and bad. He’s lost and come back and knows when a deal is worth pursuing.”
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Trump has been largely holed up at his Mar-a-Lago club in Palm Beach, Florida, phoning in to TV news shows while mulling how to project his America First agenda on to the 2022 midterm elections and weighing the potential of a new social media platform. Last weekend, he played golf with 2020 U.S. Open champion Bryson Dechambeau and also delighted guests by appearing at a high-end car show at Mar-a-Lago.
Meanwhile, the idea of a Trump SPAC, as they are known, is gaining traction on Wall Street, according to Fox Business.
And experts say SPACs could tie in with Trump’s social media ambitions or hospitality experience while capitalizing on his branding and the enthusiasm of his supporters.
Members of his administration have already got in on the action. Former Commerce Secretary Wilbur Ross and White House adviser Larry Kudlow have joined forces in a SPAC.
They join the likes of tennis champion Serena Williams, Baseball legend Alex Rodriguez, and basketball giant Shaquille O’Neal in lending star power to the investment vehicles.
“Why do celebrities sponsor SPACs? For the same reason others do — it is a way to make a lot of money quickly,” said professor Michael Klausner, an expert on SPACs at Stanford Law School. “In addition, at the moment, celebrities may be able to get a little extra out of the buying frenzy. Why would Trump sponsor a SPAC? Why not?”
A SPAC is essentially a publicly listed shell company with no active operations. It serves as a “blank check” company with the sole purpose of acquiring another business and taking it public, without the rigmarole and conditions of its own initial public offering.
Sponsors typically sell shares in the SPAC for $10. Investors are told the money will be used to seek a merger with a private company within two years.
If it comes off, with an acquisition of an exciting new company, then investors see their shares soar in price. If no deal is done, then investors get their money back.
The sponsors, who typically put up several million dollars to get the whole thing going, can see their money multiply several fold in months.
The huge profits for sponsors and no-risk deals for investors have seen their popularity explode in the past two years, according to University of Florida finance professor Jay Ritter, who said their numbers had increased from 59 in 2019 to 294 already this year.
Private companies, he added, would want to know what Trump brought to the deal, beyond a table at Mar-a-Lago.
“I could easily see a situation where a financier says they will put in $7 million and give some of their sponsor shares to Donald Trump because he’ll open some doors and possibly help negotiate a deal on more attractive terms than if they do it themselves,” he said. “Just like with some of these other celebrities who might create some value.”
The Trump Organization and a spokesman for Trump did not respond to requests for comment.
However, one theory is that a Trump SPAC could be a vehicle to take public a social media platform such as Parler. Or his background in hotels and real estate might make for a hospitality play.
And there is another advantage. Trump has proved a powerful fundraiser, attracting millions of small donations from his supporters.
“If they are willing to give him money for nothing, they will be willing to place a bet that the bubble will continue, and they’ll make money to boot,” said Klausner.
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But none of it is without risk. Although sponsors and initial investors can make serious money in a hurry, retail investors buying shares on the secondary market can get badly stung if mergers dry up or fail to meet expectations.
“Why are they choosing Colin Kaepernick or Donald Trump’s SPACs. I think it’s just like baseball cards,” he said. “They don’t know anything about the underlying company that’s going to be bought. They are rolling the dice.”
