Emmett Investment Challenges Brightstar’s $1.1 Billion PlayAGS Takeover Bid

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In a twist of financial storytelling, Emmett Investment Management roused the investment community on Tuesday when it publicly opposed Brightstar Capital Partners’ $1.1 billion takeover bid for PlayAGS. Emmett Investment Management, known for its characteristic focus on mid- and small-cap stocks, took its concerns directly to PlayAGS investors through an open letter.

Brightstar Capital had earlier proposed to acquire PlayAGS, a prominent Las Vegas-based slot machine manufacturer, in a deal primarily framed as a go-private bid. The terms of the deal floated on May 9 had gained approval from PlayAGS’ board, resulting in a glittering stock value offer of $12.50 per share. This presented a generous 40% premium above the closing stock price on May 8. The announcement prompted a soaring 33.3 percent increase in PlayAGS’ shares over the week but fell short of the proposed acquisition price.

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Emmett Investment Management questioned the takeover bid’s timing, highlighting its close proximity to PlayAGS’ impressive first-quarter earnings announcement. The New York-based firm, who owns approximately 1.5% of PlayAGS’ outstanding equity, postulated that the acquisition news might have prematurely eclipsed critical financial data from PlayAGS.

In the letter, Emmett’s CIO and founder Alexander Rohr opined about PlayAGS’ robust first-quarter results. He pointed to the 21% growth in organic adjusted EBITDA, which significantly outpaced industry averages. Rohr also emphasized the 9 times year-over-year and almost 50% quarterly increase in interactive segment adjusted EBITDA – a market area assigned with the highest multiples.

Rohr speculated about an alternative scenario in which PlayAGS’ stock traded substantially higher than $11.40, given enough time for investors to digest the first-quarter results sans Brightstar’s acquisition bid. Emmett’s Chief Investment Officer painted a picture of PlayAGS’ shares trading above the current market price, fuelled by a ~15% forecasted increase by 2024 in the adjusted EBITDA.

Furthermore, Rohr suggested that the bid fell short of offering an attractive premium, noting it offered “effectively zero — or negative — premium”. He criticized the bid’s failure to account for potential industry disruptions caused by the pending merger of International Game Technology’s global games unit with Everi Holdings. A deal that Rohr believes could pave the way for PlayAGS to gain additional market share.

While Emmett Investment Management isn’t opposed to the sale of PlayAGS, Rohr expressed considerable doubt regarding the Brightstar bid. Rohr described the offer as a shallow representation of the progress PlayAGS had achieved, as well as what it could potentially realize in the long term. Instead, he depicted a scenario where PlayAGS could offer significant value as a standalone public company, predicting a target of $225 million in 2026 adjusted EBITDA. Under this scenario, PlayAGS’ shares could skyrocket to $24.70 – nearly double Brightstar’s bid.

Although Rohr stopped short of suggesting other potential suitors for PlayAGS, the market grapevine has remained noticeably silent regarding a possible bidding war. Nonetheless, it remains to see how this financially charged narrative will play out in the end.