Early Signs Point to Big Year of Consolidation in the Biofuels Business

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Ocean Park Advisors foresees more independent companies exploring exits from the biofuels business in 2016.

Ocean Park Advisors (OPA) is a corporate finance advisory firm that provides advisory, restructuring and services to lenders, institutional investors and companies.

Ocean Park Advisors (OPA) is a corporate finance advisory firm that provides advisory, restructuring and services to lenders, institutional investors and companies.

With dampened expectations for profitability, mostly due to commodity prices and excessive production capacity, we expect most remaining non-strategic players to explore exits this year.

The North American biofuels industry saw dramatic consolidation of players in 2015, and signs so far this year point to an even greater number of mergers and acquisitions in 2016, a leading industry advisor says.

“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,” said Bruce Comer, founder and managing director at Los Angeles-based Ocean Park Advisors.

The ethanol industry in particular is ripe for consolidation, Comer said. He noted there are still 94 stand-alone plants that account for 5.3 billion gallons, or 36 percent of domestic production.

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

The announcements made in the first few weeks of 2016 already provide a glimpse into the potential flow for the year, Comer said. Those include:

  • REG, a biodiesel producer based in Ames, Iowa, announced the acquisition of the 20 million gallon per year Sanimax biodiesel plant in Wisconsin, sending a signal that one of the industry leaders will continue building its armada of plants.
  • Abengoa has begun to market its global, first-generation ethanol assets due to financial distress at the Spanish parent company. In the U.S., Abengoa owns six ethanol plants with a combined capacity of 381 MGPY. This could represent a challenge for the sector to absorb.
  • ADM announced a strategic review of its dry mills. With 1.7 BGPY comprised of three dry mills and five wet mills, ADM is the industry leader, and is now evaluating its commitment to the ethanol industry due to the long-term outlook on sector profitability.

“On the advanced biofuels and renewable chemical front, we think the limited availability of capital will also compel independent players to explore strategic collaborations or sales,” Comer said.

In 2015, Ocean Park Advisors tracked 10 biofuels transactions worth an estimated $750 – $850 million in value. The deals involved 13 plants with 888 MGPY of production capacity. In addition, there were another three acquisitions of advanced biofuels/renewable chemical companies.

“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.”

About Ocean Park Advisors
Ocean Park Advisors (OPA) is a corporate finance advisory firm that provides advisory, restructuring and services to lenders, institutional investors and companies. The Principals at OPA have extensive history in the biofuels, renewable energy and agribusiness industries, acting as owners, operators, investors and corporate financial advisors. OPA has closed 21 biofuels transactions totaling over 750 million gallons of production capacity in the last five years. Other industries of expertise include food and agribusiness, renewable energy and midstream energy. The firm has professionals in Los Angeles and Omaha.

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