When Inspired Entertainment offered to buy AGS at $10 a share it immediately set off the usual round of analyses about the value of the offer, the ability of Inspired to finance it productively and its likelihood of being consummated.
The general reaction has been that Inspired might have to pony up more like $12 or $13 a share, amid speculation that chief AGS stock owner Apollo might simply put the company up for sale to the highest bidder.
AGS stock shot up on the report from under $6 to around $8. Simply based on stock price, $10 would seem a generous premium.
But a lot of observers think a deal won’t happen for a simple reason: AGS appears to be worth more.
That, in turn, should motivate investors to look at these companies more closely. If they do, they will see that both are worth more than their current prices—under $8 for AGS and $12-plus for Inspired.
Simply looking at their guidance and analysts’ forecasts, you can get back-of-the-envelope valuations of $12 to $15 for AGS and mid-$20s for Inspired, and that is before considering their strategic strengths. Indeed, look two, three or four years out and one can see both stock prices several times’ today’s levels.
AGS is the more conventional of the pair as a slot machine supplier. It has achieved 70 percent recurring revenues, doubled its share of revenues from premium leased games to 12 percent, has a growing table games business and is selling for a ridiculously cheap five times or less of forward enterprise value-to-EBITDA.
Further, it has a bright future with interactive revenues mushrooming, geographic expansion ahead and, according to the EILERS-FANTINI industry-leading slots and games surveys, products favored by its casino customers.
Inspired has a similarly cheap valuation, virtually owns the fast-growing virtual sports gaming space, is starting to provide games to what is certain to be a huge iLottery market, and has nearly all recurring revenue tied to the health of local gaming markets.
Indeed, Executive Chairman Lorne Weil, who is not given to hyperbole, calls Inspired’s growth opportunities phenomenal.
The only concerning issue mentioned to date about an acquisition is debt to be taken on, but the combined company would produce enough free cash flow to easily handle that.
Perhaps most interesting is the history and the possible future of management. In acquiring AGS, Weil would be doing what he has done before. He once headed a small company headquartered in provincial Newark, Delaware, named Autotote that provided totalizator services to racetracks. Through a series of acquisitions, Weil created a gaming industry giant, Scientific Games.
Of course, Weil is at a stage where a merger such as this might be more of a capstone than a building block of a long and successful career.
And that might be where David Lopez steps in. The still-young AGS CEO is perhaps the kind of long-term leader who can lead the new Inspired into what could be, well, an inspired future.
Maybe such a succession plan could be part of a merger negotiation.
Meanwhile, regardless of whether a deal occurs, the proposed purchase itself might have achieved a positive purpose for shareholders of both companies by bringing investor attention to two under-followed and under-valued stocks.
Hooray for the AGA HoF Choices for 2022
Time for a personal note: The American Gaming Association has hit a home run in selecting Gavin Isaacs, Virginia McDowell and Mike Rumbolz for induction into its Hall of Fame.
Their professional accomplishments and leadership in the gaming industry have been chronicled in detail and will be recited in the weeks leading up to their October induction at G2E.
But, for me, they also stand out for personal qualities that amplified their professional skills.
I was one of the first people, and perhaps the first outside of the Aristocrat organization, to meet with Gavin when he was brought in to fix the company’s troubled operations in the Americas.
It was instantly clear that Gavin possessed the personality and perspicacity to step into an unsettled situation and immediately steady the ship. So he did. And from that point until today, in many different roles, Gavin has been providing the insights and ability to bring out the best in others.
The term “trailblazer” is way overused today. But for Virginia, it is a perfect fit. She was a top executive before many women were found in the C-suites of casino companies. And her role was not one of the “soft” routes such as public affairs or HR taken by many women, but the otherwise men-only world of chief operating officer and later as the industry’s only major company CEO at Isle of Capri.
Virginia was also a pioneer in the expansion of gaming nationally at Argosy Gaming.
As a leader, Virginia has been sure to help other women advance through Global Gaming Women and, in the process, help the gaming industry expand the talent pool of its leadership corps.
Mike has served in nearly every capacity a person can—chief gaming regulator for Nevada, attorney, casino manager, CEO of several gaming technology companies, board member of others.
Part of Mike’s success is his ability to deal with people. He is the personification of the dictionary definition of suave: gracious and sophisticated, smooth in performance and style.
Mike also has a core ability: insight and strategic thinking. Those qualities were never more on display than when he stepped in as CEO of Everi and succeeded in melding together two otherwise disparate parts – slot machine development and financial services.
Today, Mike is executive chair at Everi overseeing a company that promises more success to come thanks to the leadership team now at the controls.
