More unusual Trump family M&A
I wrote recently about plans for Trump Social to merge with a fusion energy company. It's a weird deal – the two businesses are in different markets building different products for very different customers! – but after thinking about it for a while, I understood the motivation. The Trump Media and Technology Group, which controls Trump Social, has watched its value plummet over recent months. TAE, the fusion energy company, is attractive to investors because it may one day be able to generate power for data centers that train and operate LLMs and other AI models. The combined company could have a higher market capitalization and share price than Truth Social alone.
Two days ago I learned about another weird proposed merger involving a company with Trump family money in it.
In this case, JFB Holdings, a Florida-based construction company, plans to merge with Xtend, a company that builds drones and AI-driven systems for sale to the defense industry. The deal is funded in part by Eric Trump.
Is the SPAC back?
A few years ago, there was an explosion of "special purpose acquisition companies," or SPACs. These were companies that were started by speculators looking to cash in on public stock listings in a novel way.
First, an individual or group would create a company that had no products, no factories or warehouses, and no (or almost no) employees. It would immediately be listed on one of the public stock exchanges, like the NYSE or NASDAQ. Its sole purpose was to find some other company, privately held with no shares for sale on the public market.
The SPAC operators would look around for a likely prospect, approach its management, and propose the merger. If management agreed and the merger proceeded, the result would be a single new company with a stock ticker symbol and access to investors in the public market (the assets that the SPAC had), along with whatever products and customers the original company had.
Formally listing a company on the public markets is an onerous procedure, with extensive disclosures required, lots of questions from regulators and investors, and careful scrutiny by the stock markets themselves. A SPAC merger allowed the existing company to avoid much of that hassle, and jump straight to a stock ticker symbol.
The SPAC speculators generally wrote some juicy terms into the agreements – they were rewarded with a bunch of stock in the merged company at prices well below market.
Generally, good companies with solid fundamentals and good financials wouldn't get involved in SPAC mergers. They didn't need to pay the SPAC speculators their pound of flesh. They could go through the traditional IPO process and keep more of the value of their stock for themselves. So the companies that came to market via SPACs were often less healthy, and the vast majority of SPAC companies traded well below their original prices not long after they were listed.
Publlic market investors learned quickly to avoid SPACs. As a result, speculators quit forming SPACs and looking for merger candidates.
JFB and Xtend
JFB Construction Holdings is a pretty successful construction company that's built luxury homes, residential projects and commercial sites in 36 US states. It went public via a traditional IPO (not a SPAC merger!) in April of last year, and posted solid growth that drove its stock price up ten-fold through early February of this year. Investors liked what it was doing!
Xtend is a privately-held Israeli defense company. Getting access to US public market investors would be tough for the business on its own – SPAC companies are no longer available. The distance from Tel Aviv to Wall Street, as well as the regulatory rigor of an IPO process, must have been daunting.
Finding an existing publicly-traded business to merge with makes sense for Xtend.
It's really hard for me to understand, though, why the JFB board would agree to a merger with Xtend. As soon as the deal was announced, JFB's stock price dropped by about 40%. Investors who had placed bets on the real estate and construction industry clearly didn't like the leap from a market they understood to a new one in which the company has no expertise.
This deal looks like more Trump family grift. Eric Trump's involvement in the deal is a bright red flag. Access to the White House for policy preference and access to military leaders would no doubt be great for the merged company, and funneling money to the President's family has become commonplace.
The deal hasn't closed – it still needs regulatory approval, but there's little doubt that Eric Trump's presence will grease those wheels. I expect this one to sail through SEC review quickly. Then the US defense sector will have another vendor competing unfairly for taxpayer dollars.