Following AGS’ announcement to go private through an acquisition from Brightstar Capital Partners last week, Emmett Investment Management has come out in opposition of the move.
Holding 1.5 per cent of AGS’ outstanding stock, the investment management firm published a letter claiming that the acquisition move announced last week offers “effectively zero, or negative premium” for shareholders.
EIM’s statement read: “We feel compelled to share with you our concerns about AGS’s recently announced take-private transaction with Brightstar Capital Partners. We do not believe the take-private transaction is in the best interest of stockholders, and we intend to vote against the transaction.”
Set to be completed in 2025 upon being accepted by AGS’ shareholders, the acquisition priced AGS at $12.50 per share in cash, representing a 41 per cent premium to the supplier’s volume-weighted average share price over the last 90 days.
However, EIM suggested that the figure has potential to be higher due to AGS’ first quarter results that were revealed after the Brightstar acquisition announcement.
According to the investment firm, AGS’ Q1 performance reinforced its “optimistic view of AGS’ prospects” as organic adjusted EBITDA grew by 21 per cent and the supplier’s interactive segment’s adjusted EBITDA increased almost nine-fold from Q1 2023.
Stated within the letter, EIM suggested that had the financial results been published ahead of the acquisition announcement, shareholders might’ve been able to gain a higher premium on their shares.
The letter read: “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.
“It is clear to any reasonable market participant that a $12.50 take-private bid for AGS would be practicable only if announced before AGS could trade freely after the release of first quarter results.
“In other words, the only way for this take-private bid to have been remotely palatable to stockholders was if stockholders did not fully appreciate the impact of the first quarter results.”
EIM’s letter also explained that the acquisition deal’s stated enterprise value of approximately $1.1bn differs from the actual fully diluted enterprise value calculable from Brightstar’s $12.50 per share bid, which comes out to $1.06bn.
If the Brightstar bid’s enterprise value were to represent $1.1bn in full, a share price of $13.4 would be required.
The letter also noted that two of AGE’ main competitors in the land-based gaming sector, IGT and Everi, are set to merge.
EIM suggested this could present a “significant upside” for AGS shareholders with an opportunity for increased market share, something touted by AGS in its March Investor Presentation.
Additionally, the firm pointed out that the merger is set for completion in 2025, meaning that shareholders are expected to forward sell their shares for “a multiple of well below x4.8 NTM adjusted EBITDA, assuming only modest organic growth”.
Ultimately, the letter stated: “We do not understand why any shareholder would be excited to sell an excellent, growing business at this relatively low multiple and a flat share price relative to 2019.
“We believe AGS would have a bright future as a standalone public company, with at least $225m in 2026 adjusted EBITDA clearly achievable. Even on a multiple of x7 adjusted EBITDA – a significant discount to slower-growing peer Light and Wonder’s x9 NTM multiple – AGS shares would trade at $24.70, nearly 100 per cent higher than Brightstar’s bid.
“We do not oppose a take-private offer per se, but Brightstar’s offer fails to reward stockholders for the strong performance AGS has already demonstrated and fails to account for the company’s significant potential.”