Gaming supplier AGS had two big announcements last week. First, AGS announced it will acquire Integrity Gaming Corporation, a Vancouver-Canada-based route operator with a footprint of 2,700 Class II and Class III games in Oklahoma and Texas, for a cash payment of $49 million, or 46 cents per share. The price includes repayment of $36 million in outstanding debt for Integrity.
The transaction is expected to be funded with cash on the balance sheet and to close in the first half of 2019, subject to approval by Integrity’s shareholders, receipt of applicable regulatory, court, and third-party approvals, and other customary closing conditions.
In fiscal 2017, Integrity generated revenue of approximately $16 million and pre-synergy EBITDA of approximately $9 million. As a result of revenue optimization and other efficiencies, AGS expects that adjusted EBITDA will grow at approximately 15 percent on an annualized and non-GAAP basis, beginning in fiscal 2019.
“The Integrity team has built a strong business, with an installed base of more than 2,700 Class III and Class II games in Oklahoma and Texas, partnering with some of the largest tribal gaming operators in the United States,” said AGS Senior Vice President of Slot Products Andrew Burke. “AGS’ roots are in Oklahoma, and we are excited to invest further in a market we are so passionate about and where we already have strong sales and customer support networks.
“We look forward to working in partnership with the Integrity team to provide Integrity’s customers with an exceptional service and support experience and a continued focus on driving optimal game performance.”
Integrity Interim Chief Executive Officer Robert Miodunski—former CEO of AGS when it was the privately held American Gaming Systems—added, “We strongly believe this is a good transaction for our company, and that our customers will benefit from AGS’ deep roots in Oklahoma and its proven ability to successfully manage a large footprint of leased games to drive strong performance for gaming operators. We look forward to working closely with the AGS team to ensure a smooth transition and continuity of service and support for our customers. I am proud of the Integrity team and the success we have achieved over our more than 20 years.”
Integrity owns slot machines manufactured by various slot suppliers, including AGS, in approximately 30 tribal casinos in Oklahoma and Texas, and also offers direct sales of other gaming products and supplies.
Analysts were positive on the transaction, with Jeffries & Co. issuing a “Buy” rating with a price target of $34 a share on AGS stock, at press time trading at just over $22.
“We view the announced acquisition of Integrity Gaming as modestly positive given the contracted recurring revenue stream as well as the company’s operating expertise in the Class II market,” wrote Jeffries analyst David Katz. “The acquisition adds to the company’s core business with upside from scale efficiencies. We maintain our view that the business remains on its positive trajectory and is well-positioned to outgrow the peers and warrants a premium to the group.”
Katz noted that AGS expects go grow the acquired business by 15 percent each year, beginning next year. “Given the proven success of the similar Rocket Gaming acquisition in 12/2017, we expect the company can extract meaningful opportunity out of the acquired business,” Katz wrote.
“We view the transaction as a positive, and accretive to operating results as well as relationships with customers. As well, the recurring nature of the acquired revenue stream adds to the stability, with over 90 percent of the acquired installed base on long-term contracts.”
The second announcement was an agreement for AGS to provide third-party slot content to leading the Rank Group covering its Mecca Bingo and Grosvenor Casino brands.
“AGS’s game library has a lot of content that we previously didn’t have access to,” Bhotesh Maheshwari, head of product for the Rank Group, said in a press release. “Their wide variety of games coupled with our extensive player base and broad reach, will ensure that the Rank Group will continue to deliver an outstanding and consistently engaging player experience.”
Under the agreement, AGS’s iGaming Platform will provide the Rank Group with an aggregation solution, as well as access to AGS’s full library of content partners, including more than 600 games from developers like 1×2 Gaming, Ainsworth Game Technology, Gaming Realms and Reflex Gaming, among others, the release said.
