A Quiet Year for Biofuels M&A: 2017 Review and Outlook

February 01, 2018

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by Bruce Comer (Ocean Park Advisors/Biofuels Digest) More industry players chose to develop and build new capacity rather than buy plants -- The North American biofuels industry experienced the fewest merger and acquisition transactions in recent history in 2017. There were only six M&A transactions, with a total estimated value of more than $100 million. They involved eight plants with 297 million gallons per year (MGPY) of production capacity. Half of these deals were for non-operating plants. A fourth deal was for a sub-scale demonstration plant. Contributing to the limited deal flow, two historically active acquirers, Green Plains and REG, did not close a deal in biofuels in 2017. Also, ADM’s strategic review of its fleet of dry mill ethanol plants did not materialize into a transaction. The valuation levels of all cited 2017 deals were less than construction costs, underlining the distressed nature of the deals.

Instead of buying plants in 2017, many players focused on expanding the capacity of their existing assets and developing new projects. Ocean Park tracked an estimated 1 billion gallons per year (BGPY) of announced biofuels plant expansions and greenfield projects in 2017, representing 6 percent of industry capacity growth, dwarfing the 297 MGPY of M&A activity.

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The two major biodiesel and renewable diesel announcements were:

The renewable diesel plant belonging to Valero and Darling, which will add 115 MGPY in 2018.
Cargill’s new 60 MGPY biodiesel plant in Kansas.

It is unclear why producers decided to build instead of buy new capacity through M&A. One possible explanation is that many of the projects were expansions or co-located, which would drive better economics than buying distant plants.

It was also a quiet year for advanced biofuels transactions with only three small deals completed.

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Ocean Park tracked three M&A transactions in the advanced biofuels space during 2017. No plants traded in 2017. Instead, the three deals involved technologies or niche markets:

Avantium acquired Liquid Light. The Dutch renewable chemicals company will use the electro-catalysis technology to create chemicals and other products from carbon dioxide.
Green Biologics acquired GreenFlame. GreenFlame’s bio-based n-butanol assets will help Green Biologics, an advanced biofuels producer, expand into speciality markets.
Shell acquired SBI BioEnergy’s technology. The patented technology converts various waste feedstocks into low-carbon drop-in fuels.

Outlook for 2018

Regulatory: 2018 starts out with the looming question regarding the extension of the biodiesel Blenders Tax Credit (BTC) that expired at the end of 2016. A retroactive extension would be worth a few billion dollars to the biodiesel and renewable diesel supply chain. Elsewhere in renewable fuels policy in the US, there was less change to the RFS2 than industry participants feared could result from the new Trump Administration and new Congress.

Ethanol: Like 2016, ethanol margins were fairly robust in 2017, so most owners were content with their assets. Reinvestment in expansions was a key theme.

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Advanced Biofuel: Oil and fuel prices in their current range pose a challenge for advanced biofuels business plans that require raising capital. There are more exits and unfunded business plans than actual operating plants. One notable exception was Fulcrum BioEnergy’s equity and debt raises during the year. Some of the major oil companies have started to look at advanced biofuels technologies, but it is a low level of activity. Compared to 2017, Ocean Park expects more distressed and divestment transactions in 2018 with maybe a few, cautious new investments to move some of the promising technologies forward. READ MORE