Few Wall Street analysts chose to weigh in on Brightstar Capital’s surprise acquisition of PlayAGS, announced this morning hours before first-quarter earnings were due to be reported.
One who did was David Bain of B Riley Securities. He began by noting that the $1.1 billion offer represented a 41 percent premium to yesterday’s stock price. He also noted that it was a below-average 5.7-times-cash-flow bid “far below historical supplier trading multiples and certainly M&A ones.”
Continued Bain, “We do not believe AGS was actively for sale and was approached by Brightstar. While we have not reviewed the merger agreement, we believe there remain opportunities for other potential offers for AGS.” There is plenty of time, as Bain doesn’t expect the sale to close before July 2025.
As for potential rival bidders, he noted, “A handful of suppliers trade several turns above the implied M&A valuation multiple. However, we do not have any specific information of interest from others at this point.”
The B Riley analyst didn’t expect Brightstar to institute any radical changes to PlayAGS, leaving current leadership in place and possibly growing the company even further. Another subsequent IPO of PlayAGS was even mooted by Bain.
“To us, it seems undervalued, though we again have no knowledge of additional interest,” Bain concluded, explaining that the company was about to report its 16th consecutive outperformance in cash flow. He added that CEO David Lopez had “built significant market-share momentum.”
Barry Jonas of Truist Securities also commented on the buyout, calling PlayAGS “a star too bright for this world.” He downgraded AGS shares to “Hold” from “Buy” and shaved his price target from $13 per share to the Brightstar offer price of $12.50. Jonas had spotlit PlayAGS as an attractive takeover candidate on two previous occasions.
“Ultimately, we think AGS’s management and board were frustrated by the stock’s relative underperformance the past few years and didn’t see its recent turnaround and ongoing fundamental outperformance … as sufficiently reflected in the stock,” wrote Jonas, by way of exploring Lopez’s and his board’s motivation.
Waxing historical, he pointed out that Inspired Entertainment had made a bid for PlayAGS in August 2022, albeit at $10 per share. Jonas added that while it was possible Inspired would get back into the fight, its recent commentary with regard to mergers and acquisitions being a lower priority suggested otherwise.
Jonas also offered additional color on the deal, revealing that if PlayAGS withdraws, it owes Brightstar $9.7 million prior to June 22 and $19.3 million thereafter. Should Brightstar pull out, PlayAGS would get $39.6 million, but only $24.8 million should the private equity fund fail to gain the approval of gaming regulators.
The analyst had gotten a peek at PlayAGS’s first-quarter earnings by dint of a Securities & Exchange Commission filing. It revealed that the company beat cash-flow projections by double digits and showed “continued strong growth.” Electronic gaming machines drove that growth, with net revenues coming in 10 percent ahead of Wall Street projections and cash-flow margins 46 percent more favorable than Jonas had modeled.
