Struggles Drive Down 2019 Biofuels M&A
Despite Tough Year in Biofuels, Few Plants Changed Hands Last Year
OMAHA (DTN) -- Despite the biofuels industry operating on thin margins and dealing with federal policy uncertainty in 2019, the number of mergers and acquisitions in the industry was historically low last year, according to a new report from an investment bank focused on biofuels transactions.
Overproduction in the ethanol industry, as well EPA's continued issuance of small-refinery exemptions last year, led to the idling of at least 20 ethanol plants. The biodiesel industry struggled as well from the expiration of the biodiesel blenders tax credit and SREs.
According to a report from Ocean Park, based in Los Angeles, the industry continued to hold on to assets despite all the struggles in 2019.
"No large-scale, operating biofuels plants changed hands -- which is rare for the biofuels M&A market," Ocean Park said.
Just four operating biodiesel, ethanol and advanced biofuels plants, combined, were sold in 2019, with a combined capacity of just 133 million gallons per year.
Ocean Park said the remainder of merger and acquisition activity involved what the bank said was "sub-scale, idled or non-operating plants" as well as technology assets.
"Ocean Park tracked four deals for non-operating ethanol and biodiesel plants that had a combined capacity of 193 million gallons per year," the report said.
"There were other salvage deals that were not included in the analysis. In advanced biofuels, two plants traded along with three deals for technology assets."
Ocean Park said biofuels mergers and acquisitions were limited in 2019 also as a result of limited capital availability and an absence of active buyers.
When it comes to ethanol plants, Ocean Park said, transaction volumes remained historically low and valuations declined in 2019.
"The total capacity that changed hands was the second lowest in five years," the report said. "It included only two transactions with operating plants."
Ocean Park said there were three transactions in the ethanol industry last year in North America, involving four plants with a production capacity of 226 million gallons.
Saskatoon, Canada-based Federated Co-operatives acquired Terra Grain Fuels' operating ethanol plant in Belle Plaine, Saskatchewan. Ocean Park said Federated Co-operatives will continue to operate the 40-million-gallon plant.
Milton, Georgia-based Attis Industries acquired Sunoco's non-operating ethanol plant in Fulton, New York, according to the report, for $20 million. Sunoco also entered into a 10-year offtake agreement with Attis. An offtake agreement is an arrangement between a producer and a buyer to purchase or sell portions of the plant's ethanol.
Mina, South Dakota-based Glacial Lakes Energy acquired two operating ethanol plants in South Dakota from Advanced BioEnergy. With the $47.5 million acquisition, Glacial Lakes now owns four plants in South Dakota.
"Low margins prompted strategic buyers to delay or curtail M&A activity," the report said.
"This buyers' market drove down valuations. Advanced BioEnergy's sale to Glacial Lakes Energy for $47.5 million -- a valuation of $0.55 per gallon -- underscored the pressure on valuations. The price was well below the five-year average of $0.72 per gallon."
Ocean Park said average ethanol margins were at their lowest levels since 2008. As a result, several ethanol plants either cut or idled production in 2019.
That includes Valero Energy's plants in Bluffton, Indiana, and Riga, Michigan, totaling 170 million gallons per year in production capacity.
Sioux Falls, South Dakota-based POET LLC idled production at its 92-million-gallon plant in Cloverdale, Indiana, and Siouxland Energy Cooperative idled its 90-million-gallon plant in Sioux Center, Iowa.
In addition, Plymouth Energy idled its 50-million-gallon plant in Merrill, Iowa; Three Rivers Energy did the same with its 50-million-gallon plant in Coshocton, Ohio; and Corn Plus idled its 40-million-gallon plant in Winnebago, Minnesota.
BIODIESEL TRANSACTIONS DOWN
The number of biodiesel plant transactions in North America in 2019 was down by half from a banner year in the industry in 2018 for mergers and acquisitions.
The number of plants and their cumulative production capacity changing hands in 2019 were near five-year lows, according to Ocean Park.
Of the four transactions in North America last year, three were for non-operating plants.
The four transactions included four plants with a production capacity of 99 million gallons per year.
That includes World Energy's acquisition of an idled 40-million-gallon plant in Estill, South Carolina; VERBIO's acquisition of an idled 45-million-gallon plant from Atlantic Biodiesel in Welland, Ontario; Delek's acquisition of an idled 7.5-million-gallon plant from JNS Biofuels in New Albany, Mississippi; and Renewable Fuels by Peterson's acquisition of an operating 6.5-million-gallon plant from White Mountain Biodiesel in Haverhill, New Hampshire.
A number of biodiesel plants either idled or shut down production in 2019, according to Ocean Park.
That includes World Energy's plants in Harrisburg, Pennsylvania, Natchez, Mississippi, and Rome, Georgia, totaling 135 million gallons in production capacity; Flint Hills Resources' 50-million-gallon plant in Beatrice, Nebraska; Kolmar scaling back production by half at its 40-million-gallon plant in New Haven, Connecticut; W2 Fuel's plants idling in Crawfordsville, Iowa, and Adrian, Michigan, totaling 20 million gallons in production capacity.
In addition, production was idled at Renewable Energy Group's 15-million-gallon plant in New Boston, Texas; Chesapeake Green Fuels' 10-million-gallon plant in Clayton, Delaware; and Integrity Biofuels' 5-million-gallon plant in Morristown, Indiana.
Ocean Park said there was limited mergers-and-acquisition activity in advanced biofuels in 2019.
Most notably, Seaboard Energy purchased Synata Bio's idled cellulosic ethanol plant in Hugoton, Kansas. The plant was formerly owned by the now-bankrupt Abengoa Bioenergy.
"Seaboard is evaluating the best potential opportunities and uses for the acquired assets, including modifications to produce renewable diesel," the report said.
Read the Ocean Park report here: http://oceanpk.com/…
Todd Neeley can be reached at firstname.lastname@example.org
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