May 20·edited May 20

Gerstel's sudden retirement was, at least in retrospect, a huge red flag and outstanding sell/short signal.

PS: any thoughts on the AGS deal?

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yeah, stock peaked two months later. going back to the Syneron days, without going into detail, there were questions about him among investors. I actually thought about discussing his history a little more here, because he's kind of like Perion (his Syneron tenure was a disaster, but he was also the head of a discretionary business during the financial crisis) but the piece was long enough.

we talked about AGS on Twitter (I'm not calling it X) a bit. link is here:


It's interesting the stock has moved up ~2% since the announcement (not an insignificant gain in this kind of situation). On Twitter we called out one shareholder with 1.5% who came out against the deal, and argued the stock might well be at $11.56 (Friday's close) without a deal, because Q1 looks really strong.

The termination fee looks quite small ($9.7M until 6/22, $19.3M after that - still less than 2% of the purchase price), and Inspired offered $10 last year. I don't think a higher offer is out of the question, and I think there are traders taking that bet right now.

The one catch is that with the IGT/Everi deal, I don't know that there's a strategic buyer. I have a vague sense that Aristocrat might work, but I honestly have not looked close enough at that possibility.

But there is so much freaking PE money out there, is it possible the announcement sparks some interest? I think post-Q1 you can probably still make the math work at say, $15 (which is still ~$14.75 including the post-June termination fee).

This isn't really a trade I make personally, but I bet it's a trade some people have examined very closely in the last week and a half.

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You own AGS, right? How do you view the current 8% spread absent a higher offer?

I generally don't play the arb game, but have bad memories of selling a prior target post-offer so that I could redeploy the cash into seemingly brighter shinier opportunities. Only to see the offer raised materially! Twice!!

I agree with Emmett and added to my position last week.

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don't own anymore unfortunately.

I guess I'd say I see the 8% spread as attractive. if the deal breaks, I'm not sure the stock gets crushed, particularly because the termination for Brightstar is I think ~8% of the current AGS market cap (~$1 per share).

So what's the downside here? Is there even any downside — is this business worth $10.50/share (and you're getting another $1 from the term fee) without a deal? I think you can realistically argue that it its, and thus the stock shouldn't move *at all* if the deal breaks. Certainly, Emmett believes as much. Q1 really seems like a blowout, though it's harder to tell without an earnings call (this business can be lumpy).

It is a 2H 2025 close, so you're really not getting much edge on Treasuries. So I think you're basically betting on a higher offer right? I don't know that I really see an edge there — would think some PE firms already kicked the tires and Inspired has said, I believe, they're out of the M&A business for now.

But I guess you can hold for a while, see if anything pops up, without being too worried that Brightstar walks or whatever. In theory you should get a Treasury-ish return there, because it's hard to see how the deal breaks (there's no financing condition) or anything.

It bears noting that there are investors more experts in this space than myself.

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May 20Liked by Vince Martin

Thanks Vince I appreciate your thoughts!

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Yep always enjoy the discussions

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