Shares of Bragg Gaming (NASDAQ: BRAG) soared Wednesday after an investor pushed the company to consider strategic alternatives, including a possible sale.
Raper Capital founder Jeremy Raper, who oversees entities managing 375K shares of the gaming company, penned a letter to Bragg CEO and Chairman Matevz Mazij, noting Bragg has been a “chronic” laggard since its much-ballyhooed August 2021 debut on the Nasdaq.
Suffice to say, the public markets have had plenty of opportunity to appraise our Company’s growth story, over time, and yet the record demonstrates that it will not, or cannot, accord even the lower bounds of what most shareholders would consider fair value,” Raper noted to Mazij.
Bragg provides internet casino and sportsbook technology services to gaming operators via its ORYX Gaming brand. The shares are up 44.55% year to date, but trade at $5.55 at this writing, well off the 2021 high around $25. In late trading Wednesday, the stock is up 21% on volume that’s more than 13x the daily average.
Sale Could Bring ‘Certainty of Value’
Bragg management has long been aware that the stock has struggled to gain adequate valuation in public markets.
“While peers continue to trade and transact at significantly higher multiples, Bragg’s continued strong growth has yet to be reflected in the Company’s public market performance,” the company said in a 2021 statement announcing a strategic review.
That announcement didn’t mention a possible sale and, prior to today, no such news had materialized. Raper believes that should Bragg sell itself, it would capture a “gargantuan premium” while gaining “certainty of value” for investors.
“As such, it is evidently clear that a third-party sale of the business is the only way to crystallize a proper return for the underlying business value that you, and legacy management, have created,” he wrote. “I believe most all other minority shareholders would not only support this initiative, but indeed agree with my contention that such an initiative is the last, best course available to the Company.”
The investor believes there would be ample interest in Bragg and there may be something to that notion because analysts widely believe iGaming and sports betting consolidation to heat up, particularly on the technology front.
Template for Bragg Sale
Since August 2022, there have been at least seven acquisitions of business-to-business (B2B) or business-to-consumer (B2C) iGaming companies that occurred at an average enterprise value to earnings before interest, taxes, depreciation, and amortization ratio of 15x.
As Raper noted, Bragg trades for just 5.5x EV/EBITDA. But even at a multiple of 12x, the company could be worth $13.50, or more than double current prices. Whether or not a buyer will pay that much remains to be seen, but the investor sees “irrefutable economic logic” for Bragg to sell itself.
“After all, Bragg has demonstrated well-above market rates of growth, largely organic, and is increasingly in possession of unique and durable 1P content that a number of other parties — whether tier one B2C operators, or other B2B providers — would love to own outright,” concluded Raper.
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