Gaming equipment provider AGS said Monday it will acquire Canadian slot machine developer Integrity Gaming Corp. in a deal valued at $49 million.
The transaction has AGS paying 46 cents per share (Canadian) for the company’s outstanding stock and includes $36 million to cover Integrity’s outstanding debt.
AGS Senior Vice President of Slot Products Andrew Burke said in a statement Vancouver-based Integrity – which was formerly known as Poydras Gaming – has an installed base of 2,700 Class III and Class II games in approximately 30 tribal casinos in Oklahoma and Texas.
AGS said Integrity is a partner with some of the largest U.S. tribal gaming operators. Integrity owns slot machines manufactured by various slot suppliers, including AGS.
“AGS’ roots are in Oklahoma, and we are excited to invest further in a market we are passionate about and where we already have strong sales and customer support networks,” Burke said. “We look forward to working with the Integrity team to provide its customers with an exceptional service and support experience and a continued focus on driving optimal game performance.”
Stifel gaming analyst Brad Boyer told investors the deal is similar to AGS’ 2017 purchase of Rocket Gaming for $52 million, which added 1,500 installed games to the company’s portfolio,
“We are constructive on this morning’s announced Integrity acquisition as we believe the company can utilize yield optimization and cost efficiencies to ultimately generate low-teens (cash flow) from the acquired real estate,” Boyer said in a research report.
“Over time, as underperforming legacy Integrity units are removed and replaced with higher-yielding AGS equipment, we would expect to see the (revenue per device) generated across the Integrity installed base to move higher,” Boyer added.
In fiscal year 2017, Integrity generated revenue of approximately $16 million US and pre-synergy cashflow of approximately $9 million US.
AGS said the transaction is subject to approval by Integrity’s shareholders, gaming regulators, and other third parties. The transaction is expected to close in the first half of 2019.
“We strongly believe this is a good transaction for our company and that our customers will benefit from AGS’ deep roots in Oklahoma,” Integrity interim Chief Executive Officer Robert Miodunski said. “We look forward to working closely with the AGS team to ensure a smooth transition and continuity of service and support for our customers.”
Miodunski, who is an Integrity company director, became interim CEO in June. Previously, he was chairman and CEO of AGS.
In a note to investors earlier this month, Union Gaming Group analyst John DeCree said he expected AGS to seek small “tuck-in” acquisitions to grow the base. He said AGS management cited more than 20 small gaming company or technology purchases that it has made in the last few years.
DeCree said the idea would be for AGS to buy smaller competitors and underperforming slot routes where there is an opportunity to grow the business, not to just realize cost synergies or buy cash flow at reasonable multiples.
Shares of AGS, traded on the Nasdaq, closed Monday at $22.04, down 33 cents or 1.48 percent.
(CDC Executive Editor Howard Stutz contributed)
