Emmett Disapproves of PlayAGS Acquisition Proposal, Argues Brightstar Deal Undervalues Firm
Emmett Investment Management, a firm that deals in investing on mid-to-small stocks, sent a letter to PlayAGS (NYSE: AGS) investors on Tuesday urging them to reject the $1.1 billion buyout offer from Brightstar Capital Partners. The company's board approved the deal with Brightstar on May 9, and if shareholders also agree, it could close in the second half of this year. The firm's offer values PlayAGS at $12.50, which is 40% higher than where the stock closed on May 8. AGS shares are currently up 33.3% over the past week but have yet to reach $12.50.
In the letter, Emmett questioned why the buyout offer became public only a day before the company reported its impressive first-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) results.
The Brightstar transaction was announced just hours before the release of PlayAGS's transformative first-quarter results. Alexander Rohr, CIO and founder of Emmett, wrote, "The Company's first quarter results reinforce our optimistic view of AGS's prospects, as organic adjusted EBITDA grew 21%, far outpacing the industry. Business mix is also improving at AGS: adjusted EBITDA from the Company's interactive segment, to which the market assigns the highest multiple, increased almost 9x year-over-year and almost 50% sequentially."
New York-based Emmett holds around 1.5% of PlayAGS's outstanding equity.
Emmett Believes Brightstar Bid Overshadowed PlayAGS Earnings
Opposing takeovers is not uncommon among investors, and there are recent examples of professional market participants resisting gaming industry takeovers.
According to Rohr, if PlayAGS's shareholders had adequate time to take in the company's excellent first-quarter results, the stock could have been trading above the $11.40 price tag at which it currently sits. Instead, the Brightstar buyout offer overshadowed these noteworthy financials.
"If market participants had been given the opportunity to digest first quarter results absent Brightstar's bid, we believe AGS shares would be trading well above the current market price of $11.40," the Emmett CIO stated. "Any reasonable forecast of AGS's 2024 adjusted EBITDA, increased by ~15%, on a constant enterprise value/EBITDA multiple—arguably conservative given improving mix—would imply a share price higher than $11.40."
Rohr went on to say that PlayAGS investors are essentially being asked to accept an offer with essentially no premium, or even a negative one. He also pointed out that the company's first-quarter financials don't reflect the potential advantages the company might gain from the pending merger of International Game Technology's (NYSE: IGT) global games unit with Everi Holdings (NYSE: EVRI). He added that the transaction could help PlayAGS gain more market share, an aspect not considered in the Brightstar offer.
Emmett Is Open to PlayAGS Being Acquired, But Not by Brightstar
Rohr said that his firm doesn't have a problem with PlayAGS getting acquired, but he believes the Brightstar offer is not enough for investors, given the company's progress and its potential to grow over the long term. Rohr also sketched out a scenario in which PlayAGS could create substantial value for its shareholders without the buyout.
"We believe AGS would have a promising future as a standalone public company, with at least $225 million in 2026 adjusted EBITDA clearly achievable. Even on a multiple of 7x adjusted EBITDA — a considerable discount to slower-growing peer Light and Wonder’s 9x NTM multiple — AGS shares would trade at $24.70, a full 100% higher than Brightstar's bid," he noted.
Rohr didn't mention any other potential buyers for PlayAGS, and some analysts claim the company is unlikely to engage in a bidding war.
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Source: www.casino.org
