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A PlayAGS shareholder released an open letter yesterday (14 May) opposing its $1.1bn private equity take-private deal.

Emmett Investment Management LP, which owns approximately 1.5% of AGS’ share capital, slammed the deal for significantly undervaluing the company.

It comes following Brightstar Capital Partners’ $12.50 per share acquisition offer last week, which represented a 40% premium on the company’s share price as of 8 May.

Emmett said: “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.”

The shareholder argued the take-private was announced immediately before AGS’ “transformational” first quarter results.

It added that if the market had the opportunity to digest the results without Brightstar’s bid, the company would be trading above its current $11.40 price.

Emmett highlights benefits from IGT/Everi merger

Brightstar’s offer, Emmett argued, was also unattractive because it does not reflect any benefit AGS stands to benefit from the upcoming IGT and Everi merger.

The shareholder highlighted AGS’ March investor presentation in which it predicted the transaction is likely to accelerate market share gains.

This is especially likely in the mechanical reel segment due to AGS’ “best-in-class” new product, to be released in H2 2024, argued Emmet.

The investor also argued IGT and Everi’s more than 50% combined market share in this vertical could lead to a significant opportunity.

Emmett added that when the two companies merge, operators will likely begin systematically reducing the number of IGT/Everi units on casino floors when AGS’ new product enters the market.   

“Under Brightstar’s proposed deal, stockholders will be deprived of this significant upside,” the letter said.

The investor also said that since the AGS deal is set to close in H2 2025, and the business is cash generative, shareholders are being asked to forward sell their AGS shares for what it believes to be well below a 4.8x adjusted EBITDA multiple.

Emmett added: “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.”

Offer comes following failed 2022 bid

Brightstar’s offer comes following a failed 2022 acquisition bid by Inspired Entertainment which reportedly fell through due to price concerns.

Class action litigant Halper Sadeh LLC is also investigating the whether deal is fair to shareholders.

Emmett said: “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.”

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