Bragg Gaming shares spike as activist investor calls for sale

Shares in Bragg Gaming rose by more than 23% in trading on the Nasdaq after its second-largest investor suggested the “immediate pursuit” of either a full or partial sale of the company.

The Toronto-headquartered operator’s shares started trading on Wednesday (November 22) at C$6.35, before rocketing to a closing price of C$7.85 per share.

In a four-page letter to Bragg CEO Matevz Mazij, Raper Capital CEO Jeremy Raper outlined his rationale behind calling for a sale, suggesting it would maximize value for all shareholders.

Drawing on the business’s performance since its transition from Oryx Gaming, Raper referenced the disparity between Bragg’s revenue and adjusted EBITDA growth over the period and its share price, which has dropped by 25%, deeming it to be “chronic underperformance”.

“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 wrote.

“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 remarked.

The Raper Capital CEO stressed that a potential sale of Bragg would deliver both a “gargantuan premium” and a certainty of value, something which the business needs, asserting that it would be supported by shareholders and is the “last, best course” available to the company.

Justifying his comments, Raper cited sales of similar businesses in the sector, all of which have been at a substantive premium to their enterprise value.

Raper contends that Bragg’s track record of revenue growth, as well as the “unique and durable” IP content, would present a tempting prize to both B2B and B2C providers and could sweeten the sale.

“As such, there is simply no reason to persist in purgatorial futility as a listed company, in a market unwilling to accord even a modicum of reasonable fair value, when this kind of absolute return would be readily available through an outright sale,” he opined.

“Beyond the pure financial returns available should you pursue this course, I believe there is a persuasive industrial logic to selling the business now.

“Firstly, consider the cost synergies that would come with selling Bragg to a larger industry competitor – synergies that, as a seller, you would certainly be compensated for delivering to the buyer.”

Independent of the synergies, Raper suggested there is a strategic argument for pursuing scale among Bragg’s clients, which makes the business an attractive bolt-on acquisition. Equally, Bragg does not have access to equity capital market funding due to its poor share performance, he asserted.

“It is imperative Bragg considers this now, while the M&A environment remains conducive and open, and in the context of the inescapable cost of capital realities facing our company,” Raper continued.

“What you have built, first at Oryx and now at Bragg, constitutes a highly desirable, unique suite of igaming content and distribution assets that, for various reasons, has been ignored by the public markets for far, far too long – a stasis that, if uncorrected, may actually compromise the company’s continued bright growth prospects and risk much of the value you have created thus far,” the CEO concluded.

Meanwhile, earlier this month, Bragg’s president and chief operating officer Lara Falzon confirmed her resignations from both roles with effect from December 31. Bragg is yet to confirm a replacement.