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Shares in casino supplier PlayAGS are trading 25% higher after the business confirmed it had received a $10 per share all-cash acquisition offer from Inspired Entertainment.

Nasdaq-listed PlayAGS supplies a combination of slot products, table games and social casino solutions, with its roots in the Class II Native American gaming market in the US.

Inspired Entertainment – also listed on the Nasdaq – offers a portfolio of content, technology, hardware and services to gaming, betting, lottery, social and leisure operators, across both land-based and mobile channels across the world. The business is widely recognised for its virtual sports offering.

Reuters reported on rumours about a possible acquisition offer on Friday (12 August), before PlayAGS confirmed in an 8-K filing to the SEC that it had indeed received a non-binding indication of interest to purchase the business.

It clarified that the proposal was not accepted by the company and that it remains in preliminary discussions with “the third party” – commonly assumed to be Inspired Entertainment. 

PlayAGS’ board of directors and management team will carefully review any proposal received to determine the course of action it believes is in the best interests of its shareholders, it said.

Having ended trading on Thursday at around $6, the $10 per share acquisition offer represents a premium of around 67% on PlayAGS’ share price.

As of 30 June, PlayAGS held net debt of $535.4m, meaning the $370m acquisition offer values the business significantly higher than the asking price. 

Truist Securities estimated the total valuation of the bid to be around $875m, representing a sales multiple of 6.4x estimated 2022 EBITDA and 5.6x 2023 EBITDA.

Inspired, meanwhile, indicated its interest in potential M&A opportunities during its Q2 earnings call with investors last Wednesday. The firm’s CFO Stewart Baker said it was actively looking at a number of opportunities.

“We are certainly willing to use capital for M&A if it’s something that strategically fits with what we are trying to do. And there seem to be a lot of things around right now presenting themselves as possibilities,” he said.

Inspired marked its recovery from the effects of the Covid-19 pandemic during the latest quarter, as revenue grew by 71.8% year-on-year to $71.3m.

The growth was mostly driven by an increase in sales for Inspired’s virtual sports and land-based gaming segments, while its interactive segment recorded flat revenue year-on-year.

It also turned around its profits, registering net income for the quarter of $7.5m, compared to a net loss of $43.8m in the prior year period.

Adjusted EBITDA for the firm grew from $8m to $26.1m, as the results helped drive its share price from $11.28 prior to its Q2 results announcement, to as high as $13.50 in the following days.

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