The Summer of IPOs: Gevo files $150M initial public offering

August 13, 2010 |

In New York, biobutanol and renewable chemical developer Gevo, ranked #13 in the 2009-10 “50 Hottest Companies in Bioenergy” by Biofuels Digest readers and international selectors, filed its S-1 registration statement with the SEC for its initial public offering. The IPO intends to raise up to $150 million in an offering led by underwriters UBS Investment Bank, Goldman Sachs, and Piper Jaffray.

The announcement follows a $200 million IPO filing this week by PetroAlgae, in an offering led by Goldman Sachs, UBS Investment Bank, Citi, Piper Jaffray, Cowen & Co, and Baird. Among concerns raised for PetroAlgae: the generally weak IPO market, and the absence of revenues for the development-stage company.

Gevo’s full S-1 registration statement is here.

The Digest’s take:

We’ve been reporting since spring time that Gevo was preparing an S-1, so little surprise there, but we surely were delighted by the LOI with United Airlines, amongst other downstream and strategic partners. It is also interesting to note that Goldman, UBS and Piper Jaffray are bringing forward a second IPO in a week. Good sign that they have made a strategic determination on IPO timing, despite all the blather this week about the IPO market from critics of the PetroAlgae offering.

Digest readers and selectors have been bullish about Gevo for quite some time, and we have reported extensively on what we believe to be a compelling story for biobutanol as a solution for the “blend wall” issues inherent in meeting Renewable Fuel Standard annual targets. Some of the competition named by Gevo are bringing forward n-butanol products rather than isobutanol, and those can be expected (for capital and technical reasons) to ficus primarily on the renewable chemicals market. Isobutanol is an excellent feedstock for the fuel market, and we are delighted to see Gevo’s progress in assuring itself of a lion’s share of that market.

Note that they have indicated they are in discussions with the producers of up to 1.8 billion gallons of capacity regarding conversion of their ethanol plants to biobutanol. In that chase, let the Butamax / Gevo war begin. We can’t wait to see what could be the most intense, fascinating rivalry in the industry outside of Novozymes and Genencor.

Digested Highlights from the S-1 Registration statement

About Gevo: We are a renewable chemicals and advanced biofuels company. Our strategy is to commercialize biobased alternatives to petroleum-based products using a combination of synthetic biology and chemical technology. In order to implement this strategy, we are taking a building block approach. We intend to produce and sell isobutanol, a four carbon alcohol. Isobutanol can be sold directly for use as a specialty chemical or a value-added fuel blendstock. It can also be converted into butenes using simple dehydration chemistry deployed in the refining and petrochemicals industries today.

Markets

Isobutanol. Without any modification, isobutanol has applications as a specialty chemical and a fuel blendstock. Our estimate of the global market for isobutanol as a gasoline oxygenate is approximately 40 BGPY, based upon data from the IEA. As a gasoline blendstock, isobutanol’s low vapor pressure, high energy content and low water solubility versus ethanol make it a valuable product that can be sold directly to refiners and is expected to be compatible with existing engine and industry infrastructure, including pipeline assets. This global market for butanol represents approximately 1.1 BGPY, based upon volume data from SRI. Combined, the total global market for isobutanol as a fuel blendstock and specialty chemical represents approximately 41.1 BGPY.

Plastics, Fibers, Rubber and Other Polymers. Isobutanol can be converted by our potential customers into a wide variety of hydrocarbons, which form the basis for the production of many products, including: rubber, lubricants, additives, methyl methacrylate, polypropylenes, polyesters and polystyrene, representing an aggregate potential market for isobutanol of approximately 67 BGPY, based upon volume data from SRI, CMAI and Nexant.

Hydrocarbon Fuels. The hydrocarbons that can be produced from isobutanol can be used to manufacture specialty gasoline blendstocks, jet and diesel fuel, as well as other hydrocarbon fuels. The hydrocarbon fuels that can be produced from isobutanol collectively represent a potential market for isobutanol of over 900 BGPY, based upon volume data from IEA.

Agri-Energy acquisition

We are currently in discussions with several ethanol plant owners that have expressed an interest in either selling their facilities to us or entering into joint ventures with us to retrofit their plants to produce isobutanol. Collectively, these ethanol plant owners represent over 1.8 BGPY of ethanol capacity. However, there can be no assurance that we will be able to acquire access to ethanol plants from these owners.

We are currently targeting initial commercial production of isobutanol to begin in the first half of 2012. In connection with meeting this target, in August 2010 we entered into an acquisition agreement with Agri-Energy, LLC, Agri-Energy Limited Partnership, CORN-er Stone Ethanol Management, Inc. and CORN-er Stone Farmers’ Cooperative, referred to collectively as Agri-Energy. Upon and subject to the closing of the transactions contemplated by the acquisition agreement, we will acquire a 22 MGPY ethanol production facility in Luverne, Minnesota which we intend to retrofit for isobutanol production. We have agreed to pay a purchase price of approximately $20.7 million. In addition, we are acquiring and paying for $3.7 million in target working capital, subject to customary working capital adjustments. We expect to pay the aggregate purchase price with available cash reserves and previously arranged financing. While we currently expect to consummate this acquisition by September 2010, there can be no assurance that we will complete this acquisition.

Partners

In anticipation of our targeted initial commercial production of isobutanol in the first half of 2012, we have entered into a number of letters of intent and we are negotiating the final terms of several definitive agreements with future customers and partners in the chemicals and fuels markets, including:

Lanxess
Total
Toray Industries
United Air Lines
CDTECH

Competitive strengths

The Gevo Integrated Fermentation Technology (GIFT) demonstrated at commercially relevant scale. “We have completed the retrofit of a 1 MGPY ethanol facility and successfully produced isobutanol at this facility using our first-generation biocatalyst, achieving our commercial targets for concentration, yield and productivity…Also, we believe that our entry into the acquisition agreement with Agri-Energy demonstrates the readiness of our technology for commercial deployment and supports our plan to commence initial commercial-scale isobutanol production in the first half of 2012.”

Renewable platform molecule to serve multiple large drop-in markets. Proprietary, low cost technology with global applications. Capital-light commercial deployment strategy optimized for existing infrastructure.

Strategic relationships with chemicals, fuels and engineering industry leaders. “We have entered into strategic relationships with global industry leaders to accelerate the execution of our commercial deployment strategy both in the US and internationally. A number of our strategic partners are also direct or indirect investors in our company.”

Experienced team with a proven track record.

Strategy

Our strategy is to commercialize our isobutanol for use directly as a specialty chemical and low vapor pressure fuel blendstock and for conversion into plastics, fibers, rubber, other polymers and hydrocarbon fuels. Key elements of our strategy include:

Deploy first commercial production facility. In August 2010, we entered into an acquisition agreement with Agri-Energy. Upon and subject to the consummation of the transactions contemplated by the acquisition agreement, we will acquire a 22 MGPY ethanol production facility in Luverne, Minnesota. We expect to begin our retrofit of the Luverne facility in the fourth quarter of 2010 and commence commercial production of approximately 18 MGPY of isobutanol at the Luverne facility in the first half of 2012.

Enter into supply agreements with customers to support capacity growth. We intend to transition the letters of intent that we have already received into firm supply agreements.

Expand our production capacity via retrofit of additional existing ethanol facilities.
We believe that our exclusive alliance with ICM will enhance our ability to rapidly deploy our technology on a commercial scale at these facilities. We plan to acquire access to additional production capacity to enable us to produce and sell over 500 million gallons of isobutanol in 2014.

Expand adoption of our isobutanol across multiple applications and markets. We intend to drive adoption of our isobutanol in multiple US and international chemicals and fuels end-markets by offering a renewable product with superior properties at a competitive price. providers.

Align the value chain for our isobutanol by collaborating with large brand owners. We are developing relationships with large brand owners to purchase products made from our isobutanol by third-party chemicals and fuels companies. For example, we recently entered into a letter of intent with United Air Lines, Inc. to purchase significant quantities of renewable jet fuel made from our isobutanol.

Incorporate additional feedstocks into our isobutanol production facilities. Our second-generation biocatalyst can produce isobutanol from any fuel ethanol feedstock currently in commercial use, including grains (e.g., corn, wheat, sorghum and barley) and sugar cane. We are developing a future-generation biocatalyst under contract with Cargill.

Competitors

Codexis, Novozymes, DuPont Danisco Cellulosic Ethanol, Royal DSM, Mascoma, BP, Range Fuels, Coskata, Abengoa Bioenergy, POET, ICM, Inbicon, INEOS New Planet BioEnergy, Archer Daniels Midland Company, BlueFire Ethanol, KL Energy, ZeaChem, Iogen, Qteros, AE Biofuels, Butamax, Cathay Industrial Biotech, Green Biologics Ltd., METabolic Explorer, TetraVitae Bioscience, Cobalt Technologies.

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