AGS/Inspire Deal Would Be Accretive, Boost Free Cash Flow, Says Analyst
Shares of gaming twist maker AGS (NYSE:AGS) jumped 7.78% today on to a greater extent than treble the average daily volume as marketplace participants digested tidings of the accompany rebuffing a $10 per divvy up takeover play — reportedly from Inspired Entertainment (NASDAQ:INSE).
AGS revealed it was rejecting the adjure utmost Friday inward a Form 8-K filing with the Securities and Exchange Commission (SEC). While the point has yet to substantiate Inspired is in fact the suitor, it notes it’s inward ongoing discussions with a thirdly party. That stoked optimism that a sell could eventually live reached, potential explaining today’s rally in the shares.
On the endorse of today’s rally, AGS carry is up a staggering 49.11% over the past tense hebdomad and a scorching 78% over the past month. Monday’s closemouthed at $8.10 represents the stock’s for the first time settlement to a higher place $8 since tardily February.
Even with those bullish statistics, if AGS were to eventually have a $10 a portion out offer, that implies the gillyflower could mass meeting nearly 25% from current levels.
Analysts Bullish on AGS/Inspired Marriage
While a great deal of Wall Street’s attending is on AGS as the direct inward this transaction, analysts see to it benefits inwards the proposed deal for Inspired, too.
Based on our merger math, we trust this dealing can live extremely accretive, where a $10 all-cash deal would advance INSE’s FCF/share past 75%. Even below a revised conjure that values AGS higher and includes an equity component, we believe this sell can ease get value while keeping purchase to a lower place 4.5x,” wrote Philip Milton Roth Washington psychoanalyst Edward V Engel inwards a note to clients today.
The current offer on the tabularise for AGS is $10 per part inwards cash, which the mark clear feels is too low. Hence the rejection. There is a sensation among analysts that valuing AGS at $370 million, as does the current proposal, is somewhat of a discount despite representing a 66% insurance premium to the stock’s Aug. 11 closure terms — the daylight prior to the bid decent public.
Inspired previously signaled a willingness for deal-making, but direction says that will be in prudent fashion and the society won’t overpay simply to relieve oneself an acquisition.
Other Benefits
Inspired is a supplier of picture gaming terminals (VGT) and software, so thither are potential cost-reducing opportunities inward combine with AGS.
“We believe this trade is capable of delivering over $25M in be synergies, which takes into calculate public society costs and prior supplier transactions of similar scale, where cost synergies ranged from $30-50 million,” adds Engel.
For Inspired, much of the allurement inward making a ravel at AGS comes from geographic diversification. The suitor relies on the UK for 70% of sales spell just troika states — Oklahoma, Lone-Star State and Washington — combine for 45% of AGS revenue.
As Engel notes, the larger surmount offered by the ii companies combine could broaden the investor base.