Emmett Investment Management Opposes PlayAGS's Proposed Take-Private Transaction with Brightstar Capital Partners
Releases Open Letter to AGS Stockholders Outlining Intention to Vote AGAINST Inadequate Proposal
The full text of the letter follows:
Dear Fellow Stockholders,
We feel compelled to share with you our concerns about AGS's recently announced take-private transaction with
The Brightstar transaction was announced just hours before the release of AGS's transformational first quarter results. 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.
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
It appears that AGS stockholders are being asked to accept a bid from Brightstar that offers effectively zero—or negative—premium. We are concerned that many investors may not even be aware of AGS's exceptional recent operating performance since the Company did not issue an earnings press release, as is its normal practice. It is clear to any reasonable market participant that a
It is also worth noting the slight gap between the deal's stated enterprise value of "approximately
Brightstar's offer is unattractive for yet another reason: First quarter AGS results did not reflect any of the benefit the Company stands to receive from market disruption related to the upcoming merger of IGT and Everi. As AGS touted in its March Investor Presentation, the IGT/EVRI merger will likely accelerate AGS's market share gains, particularly in the mechanical reel segment of the market. AGS currently has zero market share in mechanical reel, but a best-in-class, brand new product set to be released in the second half of 2024. IGT and EVRI together have greater than 50% market share in this segment. But when the two companies consolidate, operators will likely begin systematically reducing the number of IGT/EVRI units on their casino floors at the very moment AGS's mechanical reel product is slated to enter the market. Under Brightstar's proposed deal, stockholders will be deprived of this significant upside.
Given the AGS/Brightstar deal will close only in the second half of 2025 and AGS is meaningfully cash generative, stockholders are being asked to forward sell their AGS shares for what will likely be a multiple of well below 4.8x NTM adjusted EBITDA, assuming only modest organic growth. 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. Recall that in 2019, AGS traded at a multiple of 7x adjusted EBITDA, despite inferior mix and operating momentum; today, stockholders are being asked to sell their AGS shares for a materially lower multiple when the business mix and operating momentum have both improved.
We believe AGS would have a bright future as a standalone public company, with at least
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.
Respectfully,
Founder and CIO
About
Emmett in an investment manager based in
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