Comment from the EVO call today: "We're also progressing well with the Galaxy acquisition, and we expect to close the transaction during the second half of 2025".
From an IRR perspective it is probably desirable that the deal closes. But secretly I'm kind of curious where it is going to trade in case of a deal break. Would be less profitable (at least in the short run) but more interesting!
Well, closing guidance is 2nd half 2025 now, possibly due to multiple ongoing country/state/tribal reviews. EVO appears to have had some regulatory trouble recently, and there were even some objections raised by unions related to a massive labour dispute in Georgia (the country).
Meanwhile, 1Q'25 revenue declined again, EBITDA was flat, so tough to say where the downside could be.
That said, I'd be wary of extrapolating too much from one or two single quarters. Galaxy has a pretty good long-term track record of increasing revenue, generates most of it revenue from "physical" casinos and also generates a decent chunk of revenue overseas. After a long stretch of growth I think odds are against Galaxy Gaming being a fad.
I wouldn't go as far as a fad either - it's a compelling point that they have some features/games that every casino would want to offer. But it seems to be in a kind of limbo:
- as a merger arb, it's 14% upside/-50%(?) downside, so maybe not particularly compelling, though perhaps more likely to close than the market thinks;
- for a fundamental value investment, the upside is currently capped by the pending deal (DCF valuation was also $2.5-3.5 based on management projections), but would be more attractive if the deal breaks, opposite to the merger arb premise.
The “limbo” is one of the reasons I like it right now. I think you can buy a decent company at a decent price while other investors are waiting for clarity.
Could be. In general I try to be careful with arguments like "it's mispriced because it is illiquid / hated / small / big". In my experience a quantitative approach serves as a better anchor for me.
Nice write up! Fellow shareholder here. I agree that the spread warrants some caution, but GAN traded with quite a spread almost all the way up to the merger close.
I sold immediately after the EVO CEO comments. I think he was terse and basically implying that the acquisition was so small they'd throw it under the bus rather than do anything else to appease the regulator. On top of that Galaxy has put up underwhelming results last year, making me less sure about their standalone business valuation. And finally, the recent crackdown on offshore gambling could be problematic not only for the acquisition but also for the long-term value of GLXZ's online segment.
That said, the stock has cratered over the past few sessions. You have to make your own assumptions but even a modest chance of the deal closing implies that the market is assigning little value to the company as a going concern. I.e., if you assign a 30% chance to a deal close the market is implying that in case of a deal break the company is going to trade around $1.40 or ~8x TTM EV/EBIT (always do your own work and make your own assumptions)
Frankly it looks reasonably priced to me - if anything a bit cheap if it turns out that this regulatory crackdown is more bark than bite,
I think the India issue is an evo problem regardless of nevada, has india has decided to now pass a law banning real money gaming. i also think you believe Evo currently has a license in Nevada, which best I can tell they do not.
You are probably referring to my SSI post (?). Yeah, I think you are right. I wanted to point out how nonsensical I thought the solution was that the other poster brought up. I didn't even bother to look up if EVO actually had a Nevada license.
Whether glxz closes or not. I dont think Evo wants to be long term adversarial with Nevada and getting sued like Draftkings or Flutter. i do think Evo’s Nevada issue gets resolved through a level of robust documentation that bureaucracies love. i dont think they really want to operate in black markets anyways but do love the unregulated market revenue. the issue with India is the federal govt finally deciding to pass a law last year and regulate and not leave it up to states. evo has that issue now regardless of ngcb.
I also wonder how much of glxz revenue drop/stagnation was because previous ceo tried to juice revenue with perpetual license sales that could have been more recurring monthly revenue if played long game.
i think the ownership composition wants something to happen and not to remain independent, so if this breaks will try for something else. you have 12% owned by former cfo, ceo, director not getting any board comp, plus 7.9% chairman actually is getting slightly diluted because more sbc going to others than free shares to him over time. U take break fee plus debt refinanced if breaks for two years, they have time to sell it again, only question is what will get. i agree i dont think business as good but they do have ability to generate profit. it is really current price that makes it more compelling, with small chance closes with evo. wouldnt be as interesting if say trading at 2.50.
Galaxy and Evolution continue to be actively engaged with gaming regulators to secure the approvals required to satisfy the Gaming Approval Closing Condition, and,
consistent with Galaxy's prior disclosure, Galaxy continues to anticipate regulatory consideration of the transaction to occur in December of 2025, and subject to regulatory
approval and satisfaction of all closing conditions, closing of the transaction to occur prior to the end of the calendar year 2025.
If not included in the Nevada Gaming Board Agenda this December, it will be a a small door in a panic
Hi @writser thank you for the excellent write up - I enjoy your content! I saw in a twitter dialogue that there might be a company update on the deal status in the next week or so, is that right? Thanks!
Comment from the EVO call today: "We're also progressing well with the Galaxy acquisition, and we expect to close the transaction during the second half of 2025".
From an IRR perspective it is probably desirable that the deal closes. But secretly I'm kind of curious where it is going to trade in case of a deal break. Would be less profitable (at least in the short run) but more interesting!
Well, closing guidance is 2nd half 2025 now, possibly due to multiple ongoing country/state/tribal reviews. EVO appears to have had some regulatory trouble recently, and there were even some objections raised by unions related to a massive labour dispute in Georgia (the country).
Meanwhile, 1Q'25 revenue declined again, EBITDA was flat, so tough to say where the downside could be.
Yeah, that is the bear case.
That said, I'd be wary of extrapolating too much from one or two single quarters. Galaxy has a pretty good long-term track record of increasing revenue, generates most of it revenue from "physical" casinos and also generates a decent chunk of revenue overseas. After a long stretch of growth I think odds are against Galaxy Gaming being a fad.
I wouldn't go as far as a fad either - it's a compelling point that they have some features/games that every casino would want to offer. But it seems to be in a kind of limbo:
- as a merger arb, it's 14% upside/-50%(?) downside, so maybe not particularly compelling, though perhaps more likely to close than the market thinks;
- for a fundamental value investment, the upside is currently capped by the pending deal (DCF valuation was also $2.5-3.5 based on management projections), but would be more attractive if the deal breaks, opposite to the merger arb premise.
The “limbo” is one of the reasons I like it right now. I think you can buy a decent company at a decent price while other investors are waiting for clarity.
I feel like there’s an portion of the spread that can be explained by the stock simply not being large and liquid enough for arbs
Could be. In general I try to be careful with arguments like "it's mispriced because it is illiquid / hated / small / big". In my experience a quantitative approach serves as a better anchor for me.
Sure - hear you. Nonetheless I think it’s valid here. I’ve spoken with spec sits PMs who know about GLXZ but don’t want to spend the time given size.
Nice write up! Fellow shareholder here. I agree that the spread warrants some caution, but GAN traded with quite a spread almost all the way up to the merger close.
Tend to think this does not close.
I agree, especially after the comments from the EVO CEO yesterday during their call.
Your thoughts on current price relative to outcomes?
I sold immediately after the EVO CEO comments. I think he was terse and basically implying that the acquisition was so small they'd throw it under the bus rather than do anything else to appease the regulator. On top of that Galaxy has put up underwhelming results last year, making me less sure about their standalone business valuation. And finally, the recent crackdown on offshore gambling could be problematic not only for the acquisition but also for the long-term value of GLXZ's online segment.
That said, the stock has cratered over the past few sessions. You have to make your own assumptions but even a modest chance of the deal closing implies that the market is assigning little value to the company as a going concern. I.e., if you assign a 30% chance to a deal close the market is implying that in case of a deal break the company is going to trade around $1.40 or ~8x TTM EV/EBIT (always do your own work and make your own assumptions)
Frankly it looks reasonably priced to me - if anything a bit cheap if it turns out that this regulatory crackdown is more bark than bite,
I think the India issue is an evo problem regardless of nevada, has india has decided to now pass a law banning real money gaming. i also think you believe Evo currently has a license in Nevada, which best I can tell they do not.
You are probably referring to my SSI post (?). Yeah, I think you are right. I wanted to point out how nonsensical I thought the solution was that the other poster brought up. I didn't even bother to look up if EVO actually had a Nevada license.
Whether glxz closes or not. I dont think Evo wants to be long term adversarial with Nevada and getting sued like Draftkings or Flutter. i do think Evo’s Nevada issue gets resolved through a level of robust documentation that bureaucracies love. i dont think they really want to operate in black markets anyways but do love the unregulated market revenue. the issue with India is the federal govt finally deciding to pass a law last year and regulate and not leave it up to states. evo has that issue now regardless of ngcb.
I also wonder how much of glxz revenue drop/stagnation was because previous ceo tried to juice revenue with perpetual license sales that could have been more recurring monthly revenue if played long game.
i think the ownership composition wants something to happen and not to remain independent, so if this breaks will try for something else. you have 12% owned by former cfo, ceo, director not getting any board comp, plus 7.9% chairman actually is getting slightly diluted because more sbc going to others than free shares to him over time. U take break fee plus debt refinanced if breaks for two years, they have time to sell it again, only question is what will get. i agree i dont think business as good but they do have ability to generate profit. it is really current price that makes it more compelling, with small chance closes with evo. wouldnt be as interesting if say trading at 2.50.
https://www.gaming.nv.gov/about-us/agendas-and-dispositions-minutes/ yet another missed month… and only one slot left before Jan’26
Yep, taking longer than expected. Though I wouldn't be surprised to see another extension if a regulatory delay is the (sole) problem.
Bad news don't normally come along, they usually come in pairs
Galaxy and Evolution continue to be actively engaged with gaming regulators to secure the approvals required to satisfy the Gaming Approval Closing Condition, and,
consistent with Galaxy's prior disclosure, Galaxy continues to anticipate regulatory consideration of the transaction to occur in December of 2025, and subject to regulatory
approval and satisfaction of all closing conditions, closing of the transaction to occur prior to the end of the calendar year 2025.
If not included in the Nevada Gaming Board Agenda this December, it will be a a small door in a panic
Yeah, that would be very interesting!
Hi @writser thank you for the excellent write up - I enjoy your content! I saw in a twitter dialogue that there might be a company update on the deal status in the next week or so, is that right? Thanks!
No clue!
Hi Writser, does the Nevada Gaming Guidance concern you/change your view on POS of close?
Wrote a small update here: https://www.stocksandstuff.com/p/groceries-and-position-updates .
Thanks! Enjoyed the update!
When do you think this closes
When do YOU think it closes?
Can't make up my mind. GAN took 18 months, we are at the 14 month mark. I think it closes quicker than 4 months, but just a guess
We'll see. I don't particularly care. If it takes much longer it's probably going to be a deal break - which would be much more fun!
https://ir.galaxygaming.com/sec-filings/all-sec-filings/content/0001193125-25-226974/0001193125-25-226974.pdf