Gevo announced plans to sell $150 million of its stock to the public. Apparently it really needs the money!
The track record for biofuels IPOs has not been good over the years. There is little to suggest it is much changed now. So one would imagine that any money-losing biofuels company – like Gevo – will eventually end up dealing with a restless group of profit-minded shareholders.
So why test the financial markets and risk years of lackluster investor response – similar to what biofuels company Codexis and battery maker A123 have experienced during their public lives so far?
Gevo’s S-1 filing with the Securities and Exchange Commission on Thursday answers that question. It’s called money – perhaps $1 billion of it.
Gevo explains that its ambition is to use the cash it raises from its IPO to buy existing ethanol plants (directly and through joint ventures) and convert them to isobutanol production using the company’s proprietary technology. Gevo’s technology breaks down a variety of feedstocks, such as corn, wheat, sugar cane and cellulosic materials, into sugars using a yeast biocatalyst. A second piece of the process is an isobutanol separations unit that bolts onto an ethanol plant.
Isobutanol is a specialty chemical that substitutes for ethanol and blends with gasoline. It also is used in the production of plastics, rubber, lubricants and polyester.
The company presently has an agreement to acquire one facility, a 22 million gallon plant in Minnesota, which it is to buy for $20.7 million from Agri-Energy. The deal was announced earlier this week.
The company’s long-term goal is to produce more than 500 million gallons of isobutanol by 2014. To that end, Gevo states in its S-1 that, “We may require substantial additional financing to achieve our goals” and “we may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and licensing arrangements. To the extent that we raise additional capital through the sale or issuance of equity, warrants or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder.”
In other words, prepare for a massive company scale up. Consider this back of the envelope calculation. To reach an annual production target of 500 million gallons, Gevo will need 28 plants similar to the 22 million gallon facility it is buying in Minnesota. That’s because after converting the plant to isobutanol, production will fall to 18 million gallons a year. If one such plant costs $20.7 million, 27 additional plants will cost about $559 million. Add to that conversion costs of about $17 million a plant, or another $459 million. Together the sum is more than $1 billion.
This price tag may be reduced if the company relies on joint ventures. But then so too is its profit potential.
Gevo is not the first biofuels producer to recently target the public financial markets. Amyris filed in April with hopes of raising $100 million, even if it seems in no rush. The company in June raised more than $130 million in additional private capital and struck an equity deal with an affiliate of the French oil and gas giant Total.
PetroAlgae also announced a $200 million IPO this week.
It will be an interesting test in coming months to see how investors feel about funding an industry that is still learning to plant both feet on the ground – and which will need a bunch of money to do so.
Posted by Mark Boslet 
