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Mergers, Acquisitions Company Points to Continued Pressure on Ethanol in 2019 | KTIC Radio

Mergers, Acquisitions Company Points to Continued Pressure on Ethanol in 2019

As difficult as 2018 was for the ethanol industry in the United States, the biodiesel sector turned in one of its best years as companies improved their balance sheets despite operating without the biodiesel blenders credit, according to a new analysis by biofuels mergers and acquisitions specialist Ocean Park in Los Angeles.

Not only were profit margins good, but the biodiesel industry saw a record number of acquisitions in 2018, the analysis said.

There were 11 biodiesel plants acquired, totaling 425 million gallons in capacity. That far exceeds the second-biggest year on record, 2016, when there were seven acquisitions totaling 265 million gallons.

According to the analysis written by Ocean Park Managing Director Bruce Comer, the biodiesel industry has positioned itself for growth in 2019 for a number of reasons.

“For 2018, the effects of the U.S. International Trade Commission’s ruling against biodiesel imports from Argentina and Indonesia resulted in increased domestic demand and record profits,” according to Ocean Park.

“In August 2018, operating margins were as high as 66 cents per gallon, the highest since November 2013. As a result of this favorable operating environment, many companies now have healthy balance sheets. Ocean Park expects an active M&A (mergers and acquisitions) environment to continue as companies look for expansion opportunities.”

The company said California’s low-carbon fuel standard has been a “key driver of increased production and local consumption of biodiesel and renewable diesel. The long-term, stringent carbon-intensity-reduction targets are motivating the expansion of new renewable diesel plants and continued M&A. Cross-border M&A might also be a theme as the financial incentives offered by the program attract global players.”

BIOFUEL DEALS LARGER

Overall biofuels merger and acquisition activity not only picked up in intensity in 2018, but the “deals grew considerably in size.”

Ocean Park said a total of 12 biofuels merger and acquisition transactions closed in the United States in 2018.

“In ethanol and biodiesel, nine deals took place worth an estimated $752 million, involving 15 facilities with 770 million gallons per year of capacity,” the analysis said. “In advanced biofuels, three transactions occurred involving two cellulosic ethanol facilities and one demonstration facility.”

The ethanol industry, in particular, has seen significant margin pressure since the middle of 2018.

“In ethanol, the sale of three Green Plains’ operating plants to Valero for $319 million became the largest transaction in the ethanol sector since 2015,” according to Ocean Park. “Post-transaction, Valero becomes the second largest ethanol producer in the U.S., accounting for 11% of total U.S. ethanol production capacity.”

Also in 2018, a Swiss commodities company called Mercuria acquired Noble Group’s ethanol plant in South Bend, Indiana.

“High ethanol production levels, coupled with pricing pressure in corn and oil markets, will likely lead to more asset divestitures,” Ocean Park said about ethanol’s 2019.

BIODIESEL MERGERS

In biodiesel, a $345 million merger between World Energy and BIOX Corp. was the largest publicly announced biodiesel merger in history, according to Ocean Park.

“The dollar-per-gallon transaction valuation of $1.17/gal reflects the high-margin operating environment for biodiesel in the U.S.,” the analysis said.

In addition, Ocean Park said, 2018 featured about 1 billion gallons of announced biofuels expansions and greenfield projects. Six ethanol companies announced or launched construction totaling 323 million gallons of capacity. That includes biofuels projects from Poet and The Andersons.

In biodiesel and renewable diesel, another six U.S. companies announced or completed more than 726 million gallons of new capacity. That includes projects by Valero, Darling, World Energy, Renewable Energy Group and Andeavor.

“The increase in M&A deal volume in 2018, particularly in the biodiesel and renewable diesel space, underscores the ongoing convergence of renewable fuels producers and traditional petroleum refiners,” Ocean Park said in its analysis. “The growing costs of compliance are motivating players to add low-carbon capacity through M&A, expansions and new construction.”

ADVANCED BIOFUELS CHALLENGES

On the advanced biofuels front, Ocean Park said there were three transactions in 2018.

Frankens Energy acquired the former INEOS Bio plant in Indian River, Florida. That deal includes the non-operating cellulosic ethanol plant and 150 acres of land.

In addition, bioenergy producer VERBIO acquired DuPont’s cellulosic ethanol plant in Nevada, Iowa. The German company has plans to convert the plant to produce renewable natural gas using corn stalks, husks and cobs as feedstock. Tiger Capital Group acquired Inaeris Technologies’ demonstration facility, pilot plant and lab equipment located in Pasadena, Texas.

The once-promising advanced biofuels industry, according to Ocean Park, can expect to face tough times in 2019.

“The permanent shuttering and subsequent sale of DuPont’s $400 million cellulosic ethanol facility highlighted the challenges for new advanced biofuels technologies,” Ocean Park said.

“Difficult macro conditions are likely to continue throughout 2019 for advanced biofuels as a result of low oil prices and volatile public policy. Due to these increased investment risks, many financial and strategic investors may have little appetite for project financing of nascent advanced biofuels technologies. Existing advanced biofuels companies on a tight cash runway that are unable to stretch funding are likely to come under financial pressure and seek M&A as a strategic alternative.”

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