More consolidation in biofuel industries expected this year

By Ron Kotrba | February 22, 2016

Ocean Park Advisors says the North American biofuel industries saw a “dramatic” consolidation of players last year and, after just two months into 2016, all indications point to an even greater number of mergers and acquisitions this year.

Bruce Comer, founder and managing director of Ocean Park Advisors, said limited availability of capital will compel independent players in the advanced biofuels and renewable chemicals space to explore strategic collaborations or sales.

Earlier this month the largest player in the North American biodiesel sector, Renewable Energy Group Inc., announced a deal to acquire the 20 MMgy Sanimax biodiesel plant in Wisconsin, bumping up its number of active U.S.-based biomass-based diesel plants to 11.

“Our experience leads us to believe there will be an increased number of owners and boards of renewable fuel companies evaluating their options in 2016, if not testing the market for reasonable assessments of the value of their plants,” Comer said.

The ethanol industry is particularly ripe for consolidation, Comer said, noting the existence of 94 stand-alone plants with 5.3 billion gallons of production capacity totaling 36 percent of the ethanol industry’s domestic production capacity.

“With dampened expectations for profitability, mostly due to commodity prices and excessive production capacity, we expect most remaining nonstrategic players to explore exits this year,” Comer said.

Ocean Park Advisors pointed to two examples in the ethanol industry: Abengoa and Archer Daniels Midland Co. The firm noted Abengoa has begun marketing its global, first-generation ethanol assets due to financial distress at the Spanish parent company. Abengoa owns six ethanol plants in the U.S. with a combined capacity of 381 MMgy. “This could represent a challenge for the sector to absorb,” Ocean Park Advisors stated. For ADM, Ocean Park Advisors stated that the industry leader, with three dry mills and five wet mills totaling 1.7 billion gallons of annual production capacity, is evaluating its commitment to the ethanol industry due to the long-term outlook on sector profitability. This is evidenced by ADM’s announcement to conduct a strategic review of its dry mills.

In 2015, Ocean Park Advisors tracked 10 biofuels transactions worth an estimated $750 million to $850 million in value. The deals involved 13 plants with 888 MMgy of production capacity. In addition, there were another three acquisitions of advanced biofuels/renewable chemical companies. The firm has closed 21 biofuels transactions totaling more than 750 MMgy of production capacity in the past five years.

“If the number of willing sellers was the limiting factor over the past few years, then the number of capable buyers might be the limiting factor in 2016,” Comer said. “However, we believe this could be the year that creates a leaner and more strategic biofuels industry to carry American-made renewable fuels into the coming decades.”

 

 
 
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