Emmett Investments advises against takeover offer of PlayAGS

Finance News

Emmett Investment Management 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 has 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. 

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.