I have written about ethanol before, and regular readers will recognize that I tinge at the thought of an ethanol IPO valued at hundreds of millions of dollars! For what? What need is it fulfilling, and what sustainability does the industry project? I strongly support research in biosciences for understanding the enzyme based conversion of plant cellulose into ethanol, but that is not the same as the standard ethanol refining capacity that others have invested in over this past summer.
Now the market has also given the message loud and clear (at least for the time being) to the ethanol investors: Study the fundamentals before doing a quick flip to make a buck or two from unsuspecting investors. Hawkeye Holdings, an ethanol company owned by Thomas H. Lee Partners, today pulled the plug on its proposed $350 million IPO. This comes after an initial delay in th IPO that was announced back in September. This was a classic attempt by Thomas H Lee Partners to do a quick flip because they had barely bought their shares in the company in may (80% ownership acquired), and as Dan Primack of PEHub reports, prospectuses for the IPO arrived 3 weeks later. Fortunately, that stunt was rejected by the market at large.
I was astounded when a few ethanol companies, such as VeraSun and Aventine Renewable Energy, had blockbuster IPOs this summer. However, it seems the investor population that bought into ethanol at that time not only mistimed, but also bet on what is otherwise a commodity product at high technology growth prices (P/E ratios very very high). They learnt their lesson fast. PEHub reports the following on their performance:
VeraSun Energy (NYSE: VSE) seemed like a big hit when it raised $420 million back in June, with a stock price that climbed up to $30 per share on its first day of trading. But it’s been almost all downhill from there. The stock slipped below its $23 per share IPO price just two months later, and even fell as low as $14.88 per share. For the past week it’s been at around $22 per share. Aventine Renewable Energy (NYSE: AVR) has suffered even worse since its June IPO, which raised around $390 million. The Pekin, Ill.-based company priced at $43 per share, but opened trading today at 23.14 per share.
A stock chart obtained from Yahoo finance for AVR is given below.
Dan Primack is pointing an article in Buyouts magazine to say that eventually the deals might still work out for the investors, thanks to a drop in ethanol prices. Well, one hopes so. I do so too, partly because a failure of ethanol stocks may be perceived as additional risk in investments in the broader clean-tech category, which would be totally misplaced and wrong. Clean-tech is not just an emerging area, but most of it is entirely based on new science and technology which promises to bring new and exciting prospects for energy, storage, and emissions reduction technologies in the future. Investments in novel clean technologies should be valued for growth, but not those in standard ethanol refineries.