Ceres raises $65M in IPO: state of the biofuels IPO market

February 23, 2012 |

Ceres breaks out of the pre-IPO logjam with $65M IPO; is the soft initial demand good news or bad news for an industry hit by post-IPO share price blues?

In California, Ceres raised $65 million yesterday in its initial public offering of 5,000,000 shares of common stock, which priced at $13.00 per share after a day-to-day roller coaster in recent weeks, with the IPO rescheduled twice and the stock selling into the market at a deep discount to the $21-$23 price range which the company indicated as its price target just three weeks ago.

The underwriters have been granted a 30-day option to purchase up to an additional 750,000 shares of common stock from Ceres, which could bring the gross proceeds from the IPO to as much as $74.75 million.

Not $100 million, but not nothing

Well short of the $100 million original target for the company, but a completed IPO nonetheless. Done in the face of a persistent drought in Brazil which has challenged the performance of just about anything planted in the ground, just as the company is commercializing its high-yield sweet sorghum seeds with a target on Brazil, where sweet sorghum can be grown as a rotation crop with sugarcane. Moreover, the company was up in initial NASDAQ trading, finishing up 13 percent to $14.80 at the closing bell on Wednesday.

“The common wisdom tells CEOs to go out at the highest number possible, raise as much capital as they can, and weather the storm of lowered expectations if it comes.” commented a friend of the Digest. “But, looking at how its gone for some of them, better that some of these companies go out at a low number, and then trade up.”

The company is expected, after conversion of Convertible Notes to common stock following the IPO, to have 23.244 million shares outstanding, putting Ceres’ market cap at $344 million following the IPO.

How are Biofuels IPOs performing and why, redux:

We’ve included a chart of recent IPOs to help place the Ceres IPO in context. The company’s results place it, in market cap, in third place among the six companies that have completed IPOs in the wave of public offerings that began in 2010 with Codexis’ successful offering.

A comparison of the chart we published on February 9th, vs. the chart for yesterday, shows the difficulties that Amyris (AMRS), Codexis (CDXS) and KiOR (KIOR) have had this month in the shares market, with two-week share drops of 36%, 23% and 23%, respectively.

At Amyris, the company announced a dramatic slowdown in its progress towards commercial-scale and a pivot away from biofuels except through its JVs, while Codexis has been through management turmoil in recent weeks, losing its CFO as well as its long-time CEO.

The KiOR story

At KiOR, the share price story has been more nuanced. As commentator Dan Primack noted, “Khosla floated a small number of KiOR shares at a high price ($1.7b initial market cap, despite no revenue) last June…the stock was propped up for several months via open market purchases by hedge fund Artis Capital.” But Primack dismissed rumors that “Khosla and Artis had allegedly conspired to keep KiOR’s price high, in order to attract limited partners to Khosla,” who indeed closed a new fund last fall while KiOR was flying higher in the market. After looking at the rumors, which had reached the Digest as well as Primack’s desk at FORTUNE, Primack concluded, “leave aside the legal issues, it doesn’t even make sense financially.” We agree.

A pattern of decline?

Nevertheless, a friend of the Digest noted:

In your article, “How are biofuels IPOs performing and why?” there is a very striking pattern.  The companies are in chronological with oldest at the top and newest at the bottom. That is ALSO the order on the % change from IPO price.  Codexis, the oldest, is down the most and REGI, the newest is down the least, and all the other names fall in perfect order by percent change.  That is a very striking pattern and suggests that the amount of time a company has been public has something to do with performance.

“One possibility is that as each IPO came to market, investors compared its prospects to the already public names and in effect demanded a lower price in order to invest in the newest.  Another possibility is that the original investors understood the companies pretty well, but most other investors do not understand them.  As time goes by, more of the original investors decide to trade out of their holdings, but they increasingly have a hard time finding knowledgable and willing buyers.

“Patience is finite, and the longer the wait, the less patience remains.  Both theories could be at work, of course.  I expect to see more differentiation among these names as their first commercial plants produce results and so allow investors to see how they compare.  Many of the key measures needed to make comparisons have not been disclosed by the companies or, in fairness, may not even be known to the companies.  For investors who like to understand fully their investments, it is still early days.”

It’s worth noting that the trend identified above on February 9th is still pretty much intact, with the exception that KiOR’s decline and a generally positive reaction to Solazyme’s recent performance has put Solazyme’s performance a little ahead of KiOR’s. Gevo’s share price has also been performing well in recent months, and is up 45% for the year to date. If Gevo’s biobutanol conversion is completed on schedule in the first half, that can be expected to boost the price considerably as the company de-risks its expansion plan.

More on Ceres

The Intrepid Investor: Ceres delays IPO; others in IPO queue shift, accelerate strategies

More on the Ceres IPO, is here in Ceres’ $100M IPO: The 10-Minute version.

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