Releases Open Letter to AGS Stockholders
Outlining Intention to Vote AGAINST Inadequate Proposal
NEW
YORK, May 14, 2024 /PRNewswire/ -- Emmett
Investment Management LP ("Emmett"), an investment manager focused
on small and mid-cap equities across developed markets and owner of
approximately 1.5% of the outstanding stock of PlayAGS, Inc. (NYSE:
AGS)("AGS" or the "Company"), today released an open letter to AGS
stockholders outlining its intention to vote AGAINST the Company's
inadequate proposed take-private transaction with Brightstar
Capital Partners, which it believes significantly undervalues the
Company.
The full text of the letter follows:
May 14, 2024
Dear Fellow Stockholders,
Emmett Investment Management LP (together with
its affiliates, "Emmett" or "we") currently owns approximately 1.5%
of the outstanding stock of PlayAGS, Inc. ("AGS" or the "Company"),
making us one of the Company's largest active stockholders. We have
great respect for the Company, its management team, and operational
strategy. We enjoyed visiting the Company's headquarters in early
April and came away impressed by the increased scale and depth of
the current product offering, with over 60 unique game titles
produced in 2023, relative to just 30 in 2019.
We feel compelled to share with you our concerns
about AGS's recently announced take-private transaction with
Brightstar Capital Partners ("Brightstar"). We do not believe the
take-private transaction is in the best interest of stockholders,
and we intend to vote against the transaction.
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 $11.40. Any
reasonable forecast of AGS's 2024 adjusted EBITDA increased by
~15%, which on a constant EV/EBITDA multiple—arguably conservative
given improving mix—would imply a share price higher than
$11.40.
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 $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.
It is also worth noting the slight gap between
the deal's stated enterprise value of "approximately $1.1 billion," and the actual fully diluted
enterprise value calculable from Brightstar's $12.50 per share bid—$1.06 billion. An enterprise
value of $1.1 billion, by contrast,
would translate to an AGS share price of $13.40.
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 $225 million in 2026 adjusted EBITDA clearly
achievable. Even on a multiple of 7x adjusted EBITDA—a significant
discount to slower-growing peer Light and Wonder's 9x NTM
multiple—AGS shares would trade at $24.70, nearly 100% 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.
Respectfully,
Alexander
Rohr
Founder and CIO
Emmett Investment Management LP
About Emmett Investment Management
Emmett in an investment manager based in New York City, founded by Alexander Rohr in 2018. Emmett invests in small
and mid-cap equities across developed markets.
The views expressed are those of the authors and Emmett
Investment Management LP as of the date referenced and are subject
to change at any time based on market or other conditions. These
views are not intended to be a forecast of future events or a
guarantee of future results. These views may not be relied upon as
investment advice. The information provided in this material should
not be considered a recommendation to buy or sell any of the
securities mentioned nor a recommendation on how or if to vote, and
should be construed only as an expression of how Emmett Investment
Management LP currently intends to vote. This material is for
informational purposes and should not be construed as a research
report.
Investor
Contact:
info@emmettpartners.com
Media Contacts
Taylor
Ingraham
ASC Advisors
(203) 992-1230
tingraham@ascadvisors.com
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SOURCE Emmett Investment Management