Once is an accident, twice is a coincidence and three times is a pattern. But what about several gaming companies involved in deals to go private within a year? Going public used to be the ultimate goal for a start-up. Now things seem very different...
The Bally’s in their court...
Following an interesting period for Bally’s, Standard General stepped in around 2016 and took an ownership stake in the company. Following this, the investment firm’s Managing Partner Soo Kim became a Member of the Board, and then later Chairman in 2019, when he led the operator through a period of rapid expansion; as well as making several bids to take the company private. In 2022, it made an offer to buy Bally's at $38 per share, at a time when Bally’s was valued at well over $2bn. Now in 2024, after Fitch Ratings downgraded Bally’s credit to a ‘Negative Outlook’ with rumors circulating that the operator didn’t have the funds to finish the Chicago casino, another bid was submitted, this time at $15 per share. While this was a strategic move from Standard General, it was still heavily criticized by many investors.
While this was a strategic move from Standard General, it was still heavily criticized by many investors
K&F Growth Capital quickly released a letter to Bally’s Board of Directors. Even though the $15-per-share offer was above the $11-per-share trading price at the time, the asset management firm still believed it undervalued the company. In the letter, K&F argued that “this undervaluation is for an obvious reason: the market has lost confidence in the company’s current strategy and financial stability. The company’s share price has declined ~45% over the past year, and its bonds currently trade at a ~28% discount to par.” As such, it is believed Soo Kim and Standard General were trying to “exploit this weakness and acquire Bally’s at a fraction of its fair value, using as a source of funds Bally’s own already overstretched balance sheet.”
Even though this deal currently remains uncertain, with very few details making it out of the boardroom, it’s left Bally’s in a precarious situation. If the operator accepts the offer to go private, it will be doing so with the knowledge it had rejected a previous offer worth 2.5x more. However, if it rejects Standard General for a second time, it has an awful lot to prove.
The business saw an 18% fall in its NYSE share price when it published its Q3 reports in November, where it explained that it would lose $60m at the EBITDA level last year, $30m this year and expect to break even in 2025. In its latest Q1 report, its consolidated revenue was up 3% to $618.5m, but its net loss was at $174m. It remains to be seen whether Bally’s will go private under the company that supported its rapid expansion for the past decade, or whether it believes it can turn things around under the scrutiny of the public eye.
One that desires to excel... should Endeavor
Meanwhile, Endeavor made going private look easy. The group revealed on April 3 that it was being acquired by Silver Lake, a technology investment firm, and would be taken off the public market. Although the initial agreement was for $27.50 per share, once the value from the TKO merger between the UFC and WWE was accounted for, this rose to a staggering $25bn total consolidated enterprise value. If the acquisition is closed by Centerview Partners without any issues, Silver Lake claims this would make it the “largest private equity sponsor public-to-private investment transaction in over a decade, and the largest ever in the media and entertainment sector.” While the announcement was a shock to many, it hardly came out of the blue. Over the past decade or so, Silver Lake invested more than $3.5bn into the company, with both parties mentioning the longstanding business relationship as a key reason why Endeavor grew from $350m in annual revenue to where it stands today. So if Endeavor was doing so well, why was it going private?
Well, Endeavor went public in 2021 during a time when the market was still struggling with the Covid-19 pandemic; many companies were simply trying to stay afloat, let alone consider any major business changes. Despite closing on its first day as an IPO at $25.20 per share, the price steadily declined throughout 2022 and 2023, until it hit a low of $17.97. Of course, this was also during the SAG-AFTRA writers’ and actors’ strike, which impacted the company quite severely. During its Q2 earnings call, CFO Jason Lublin estimated that the strike affected its revenue by $25m per month, while CEO Ari Emanuel expected the action to last “months, not days.” Even after the SAG-AFTRA strike was resolved on November 9, Endeavor still wasn’t in the clear. Only two months later, in January 2024, its WWE brand was thrown into the headlines when its founder Vince McMahon resigned amid various allegations made against him.
So while Endeavor was only public for three years, each year was marked with its own distinct struggle that affected the company in unique ways. Rather than it being a reflection of the gambling industry as a whole, it seems like Endeavor had simply not enjoyed being publicly traded. In the middle of the strike on October 25, the company said it was “exploring strategic alternatives.” Even if the public market hadn’t understood Endeavor’s vision, Silver Lake did, saying it would take it private again because it “firmly believes in Endeavor’s business.”
Are IPOs losing popularity?
It would be fair to say IPOs are perceived differently than they were 20 years ago. In the business world, going public has been one of the symbols of ‘making it’ – the company is large enough, stable enough and, most importantly, it has enough potential to carry itself as a public offering. However, it seems like this is no longer the case and we question whether this has anything to do with a few recent high-profile IPO blunders.
For too long, the image of the IPO was steadfast. That’s not to say that it was ever spotless, but in the past decade in particular, there have been several companies rocking the proverbial boat and highlighting some unique flaws along the way. In the gaming and esports scene, FaZe went public in July 2022 with an initial valuation of $725m. However, it quickly became clear that the company couldn’t concurrently balance the interests of shareholders, fans and workers and that valuation plummeted to $47m by the time FaZe went private again on March 8 2024. For a while, IPOs weren't even the gaming's preferred method of going public (remember the SPAC phase?).
It’s not just the gaming scene either, but the traditional corporate companies too. Many are still dealing with the aftermath of WeWork, a company that provided both places for other companies to work from. Even though the company was valued at $47bn in 2019, it couldn’t survive the tidal wave of controversies that its Co-Founder Adam Neumann would throw its way. If you have even a passing interest in IPOs, we highly recommend reading the WeWork S-1 filing if you haven’t already. Its organization charts don’t make sense, over 10 pages discuss Adam and his family and the adjusted EBITDA is listed as -$666m. On July 11 2024, WeWork announced that it had emerged from Chapter 11 and had announced a new Board of Directors.
Of course, no one needs reminding about Uber’s first day of trading, which saw the market cap crumble from $120bn to $82bn in what’s known as ‘the worst first-day loss in US history.’ With so many big companies failing under the scrutiny of a global audience, is it any wonder that amid a changing gambling landscape, some of the companies might want to bow out and navigate future waters with fewer eyes watching their every move?
So while Endeavor was only public for three years, each year was marked with its own distinct struggle that affected the company in unique ways
PlayAGS your cards right
It's not necessarily just fewer eyes, either. It's not about having something to hide. It's about agility and not being held back by so many layers of decision-making. Indeed, almost exactly one month after Endeavor reported its acquisition, PlayAGS announced that it was being bought by affiliates of Brightstar Capital Partners in a deal valued at $1.1bn. The move was unanimously approved by the company’s Board of Directors, which will see shareholders receive $12.50 per share in cash at a 40% premium to the share price on May 8. Interestingly, after this report was released, PlayAGS canceled its conference call to discuss its first quarter 2024 financial results and doubled down by saying, “AGS will not be issuing a quarterly earnings release”, although it did state it would file the report with SEC. Speaking of that SEC filing, it’s nowhere near as solicitous as you might imagine considering AGS refused to publish it at first. Its revenue was up 15% year-on-year to $96m, income from operations rose 69% to $19.8m and its net income surged 1400% from -$334,000 to $4.3m.
To properly examine PlayAGS, though, you need to look further back than just one quarterly report. You no doubt noticed that major improvement on that last figure discussing the net incom, and, well, this is the first time it’s been in the green since 2019. In 2022, net loss was $8.04m, in 2021 it was $22.6m and in 2020 it was $44.2m. In the midst of this, AGS refinanced its $521.2m and $93.6m term loans due in 2024, which it managed to do by extending it to an aggregate principal amount of $575m due 2029. So it’s fair to say PlayAGS has been in a delicate situation for a long time and perhaps going private was the best path forward for the company. In a comment made regarding the deal, Andrew Weinberg, Founder & CEO of Brightstar, said, “We look forward to working with David and the AGS team to capitalize on opportunities by taking a long-term approach to creating value.”
Three’s company: Lottomatica, SKS365, Playtech
Playtech had made no qualms about the fact it was looking to purchase the Italian gambling group SKS365 in 2023. The company made statements to the press, and the proposed figures of $613.5m were leaked pretty soon afterwards. However, this escalated into a bidding war between Playtech, which had a market capitalization at the time of $1.8bn, and Flutter, which had $30.4bn. Not only was it already an uphill battle, but Playtech’s shares were at the lowest they’d been in years. With a spike in value at the end of 2021 marked at £7.45 ($9.44) on the London Stock Exchange, this had fallen to £3.70 by October 2023. So it was no surprise when the SKS365 deal didn’t go to Playtech, but it did catch some off-guard to learn that it had gone to the private equity-backed Lottomatica for $694.8m.
Even though Playtech is a solid and well-respected company, it begs the question of whether its public share price played any role in the acquisition going to a different player or not. Of course, the accountants involved in the decision-making process would have access to all of the company figures, whether they were public or not, so we don’t need to pretend that a private company is safe from having a low stock price at the time of a deal. On the other hand, it would also be naive to pretend that being fiscally perceived so publicly would have no knock-on effects either.
Never stepping out onto the public platform
There are also plenty of companies that have stayed private, no matter how big they get, such as bet365. On May 3 2024, Games Global confirmed the launch of its IPO but canceled the move only hours before it was due to go live on May 13. The prices were expected to be around $16 per share, with around six million shares to be sold. On the decision, Games Global CEO Walter Bugno explained that, “Meeting with investors during this IPO process has further cemented confidence in our strategy and that what we are building at Games Global is unique. With a strong balance sheet, healthy margins and meaningful growth, an IPO at this point in time was an accelerator, not an absolute necessity, for our business strategy.”
But what are some reasons a company might not want to go public? Well, as we previously mentioned, the gambling industry is in an era defined by regulatory changes, evolving demands and emerging markets. In short, we’re in a period of change, which is something rarely reflected well in quarterly reports. If the Board of Directors really believes in taking a company in a particular direction, it’s much easier to chase that dream if you don’t have external investors and shareholders analyzing every step you take (no Police pun intended).
Whether it’s launching a mobile platform with the rising popularity of online casinos or trying a new genre such as crash-style arcade games, these are always going to be considered a risk that might not pay off. That’s not to say shareholders stifle innovation, as going public has often given companies the funds and freedom to go for their goals, no matter what they are; but the nature of this funding has also changed. According to several sources, the number of publicly listed companies has dropped by 52% from the late 1990s to 2016, a figure which has only continued to increase. Also of note, in 2018 IPOs brought in $50.3bn in the tech sectors, while private equity firms invested $130.9bn. This suggests that if you want to really focus on advancing the technology of your product, such as companies in a tech-heavy field like gambling, then you might find more opportunities with a supportive private equity company.
