Ocean Park: Biofuels mergers and acquisitions hit a lull in 2017

By Ocean Park | February 05, 2018

The North American biofuels industry experienced the fewest merger and acquisition (M&A) transactions in recent history in 2017. For the year, just six M&A transactions occurred, with a total estimated value of more than $100 million, down from 12 M&A transactions in 2016.

“In 2017, many companies focused on expanding the capacity of their existing assets and developing new projects,” said Bruce Comer, founder and managing director of Ocean Park. “One possible explanation for the trend toward building rather than buying new capacity is that many of the projects were expansions or co-located, which would drive better economics than buying distant plants.”

The noted six M&A transactions involved eight plants with 297 million gallons per year of production capacity. Half of those transactions were for non-operating plants. A fourth transaction 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 last year.

Ocean Park tracked an estimated 1 billion gallons per year of announced biofuels plant expansions and greenfield projects in 2017, representing 6 percent of industry capacity growth, dwarfing the 297 MMgy of M&A activity. In the ethanol sector, 13 companies announced or began construction for 622 MMgy of new capacity, while in the biodiesel and renewable diesel sectors, 11 companies either announced or completed 330 MMgy of new capacity.

Two major biodiesel and renewable diesel announcements were made in 2017. By mid-2018, Valero Energy Corporation and Darling Ingredients aim to increase capacity 115 MMgy by expanding its renewable diesel plant in Louisiana. Cargill plans to build a new 60 MMgy biodiesel plant in Kansas scheduled to open in 2019.

“All of the expansion and new project developments attest to the overall health of the sector and bullish sentiments of owners,” said Comer. “Ultimately, established players building more capacity is consolidation through organic growth rather than through acquisitions.”

For more analysis and the 2018 outlook, read “A Quiet Year for Biofuels M&A: 2017 Review and Outlook” authored by Bruce Comer.