Posted on: May 9, 2024, 04:39h. 

Last updated on: May 10, 2024, 09:19h.

Shares of slot machine maker PlayAGS (NYSE: AGS) surged 26.56% Thursday on volume that was 35 times the daily average after the company said it has agreed to be acquired by Brightstar Capital Partners for $1.1 billion.

PlayAGS slot machines, seen above. The company is being acquired by Brightstar Capital for $1.1 billion. (Image: PlayAGS)

The offer from the private equity firm values PlayAGS at $12.50 a share, a 41% premium to the stock’s volume-weighted average share price over the last 90 days, and 40% above where it closed on May 8. PlayAGS closed at $11.34 on Thursday.

The Company’s Board of Directors has unanimously approved, and recommended that the Company’s stockholders approve, the agreement. AGS shareholders will receive $12.50 per share in cash,” according to a statement issued by the Las Vegas-based target.

The transaction is expected to close in the second half of this year.

PlayAGS Takeover Surprised Some Analysts

While the gaming industry is always a hotbed of takeover rumors, PlayAGS hadn’t been the subject of such speculation, indicating that Brightstar’s deal for the company was a surprise to some market observers. Count Stifel analyst Jeffrey Stantial among those who didn’t have PlayAGS being acquired on his 2024 bingo card.

In a note to clients on Thursday, Stantial did say that PlayAGS’s share price had long been detached from the company’s impressive fundamentals, adding that “with the benefit of hindsight,” the firm’s operational improvements over the past few years made it a logical buyout candidate for a private equity firm like Brightstar.

“Despite these structural improvements, shares continued to trade at a pronounced discount to peers (4.9x as of yesterday’s close vs. US-listed peers 4.8x-9.5x) which we attribute primarily to technical constraints in a risk-off tape,” wrote the analyst. “While commentary in the press release was limited (and we await background context in the proxy), ultimately we expect Brightstar Capital Partners spotted similar dislocation hence offering an attractive takeout premium & expanding into a new vertical.”

While it was unexpected that PlayAGS would be acquired this year, the company has been the center of takeover chatter in the past. In August 2022, Inspired Entertainment (NASDAQ: INSE) offered $10 a share for AGS, but that deal fell apart a month later.

PlayAGS Has Private Equity Ties

The marriage to Brightstar isn’t PlayAGS’ first private equity relationship. Apollo Global Management acquired American Gaming Systems (AGS) for $215 million in 2013, and that firm would later be rolled into the corporation that became PlayAGS, making Apollo the biggest investor in the firm. Apollo shed that stake in late 2022.

As for New York-based Brightstar, the AGS buyout appears to be its first move into the gaming space as its list of current and realized investments doesn’t indicate existing or prior ties to the industry. Stifel’s Stantial said the buyer already has financing secured for the deal and it’s likely to easily be approved by PlayAGS shareholders, but there could be some regulatory issues to be dealt with.

“1) Brightstar Capital Partners is not licensed and new to the gaming industry, and 2) several state gaming control boards are currently backed up with long lead times to get on the docket for monthly board meetings,” observed the analyst.

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