A little more than a month ago, on April 16th, it looked like the remarkable run of Amaya Gaming (TSX:AYA) was over. After releasing fourth quarter results that were seen as soft by the street, the stock had bottomed at $5.81, down from a high of just under nine dollars in February.
But by yesterday, Amaya’s stock had risen so high that the company issued a press release looking to explain the move, which has happened in the absence of any news.
“In response to trading activity that may stem from market rumours that have come to the company’s attention regarding a potential strategic acquisition, Amaya Gaming Group Inc. has stated that strategic acquisitions have been and are one component of the company’s growth strategy, and as such, Amaya regularly evaluates potential acquisition opportunities. From time to time, this process leads to discussions with potential acquisition targets. There can be no assurance that any such discussions will ultimately lead to a transaction. As a general policy, Amaya does not publicly comment on potential acquisitions unless and until a binding legal agreement has been signed. The company intends to make no further comment or release regarding current market rumours unless and until such comment is warranted.”
Boilerplate stuff, but it hints at the market potential that comes with the ongoing gaming deregulation in the U.S, and how Amaya has wedged itself into a significant role in that shift. After New Jersey became the third state to legalize online gaming in February of last year, dozens of companies applied for liceneses there. Amaya moved fast, becoming online gaming provider to notables such as Trump Plaza and Golden Nugget. Why the urgency? For one, there’s the size of the untapped market. New Jersey Treasurer Andrew Sidamon-Eristoff has publicly stated that the market could be as large as $1.2 billion the first year of its operation alone.
Investors in Amaya have developed a keen eye for the upside that acquisitions can make for a reason; they have transformed the company. It began with the bargain basement pickups of Canadian gamers Cryptologic and Chartwell Technology in 2011 before Amaya made its most dramatic move; the November, 2012 $177-million acquisition of Atlanta-based gaming machine maker Cadillac Jack, which had machine placements in more than 200 venues in the United States and Mexico. It was through Cadillac Jack that Amaya received approval from New Jersey’s Division of Gaming Enforcement to put slot machines in New Jersey.
With a cash position of $119.3 million and gross debt of $201.5-million at the end of its recent Q1, Amaya has demonstrated that it is aggressive with its balance sheet. With management disclosing an additional debt facility of US$80 million on its current US$160 million senior term loan, the company does seem fully capable of closing on another potentially transformative acquisition. The question for Amaya shareholders is whether the company’s success with them has trained the market into a “buy on rumour, sell on news” reaction, or if the company can surprise with more upside if an acquisition does indeed happen.
At press time, shares of Amaya Gaming were up 2.8% to $10.85.