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First IPO of 2012 Will Be REGI, a Biodiesel Firm

By Eric Wesoff

Renewable Energy Group Inc. (NASDAQ:REGI) is set to go public this week if market conditions permit in what will be the first IPO of 2012. The firm is the largest biodiesel producer in the U.S.

According to its most recent S-1, REGI is looking to raise approximately $124 million through sale of 7.3 million shares of its common stock in a price range of $13.00 to $15.00 per share.

This company is financially a bit different than the other biofuel IPOs of 2010 and 2011. Most of those firms like Gevo, Codexis, Kior, and Amyris have relatively smaller revenues and little visibility into profitability. They are essentially development-stage firms, and, as GigaOm's Katie Fehrenbacher reports, they are thinly traded "controlled companies."

Not so for REGI.

Renewable Energy Group had $557 million in revenue in the first nine months of 2011 compared to $146 million in the first nine months of 2010. This firm lost $27 million in the first nine months of 2011 versus a loss of $25 million in the first nine months of 2010. REGI became cash flow-positive starting in the fourth quarter of 2010.

As per the S-1:

We are the largest producer of biodiesel in the United States based on gallons produced. We have played a leading role in developing the United States biodiesel industry since our inception in 1996. We market and distribute our biodiesel throughout the country to all segments of the petroleum-based distillate fuel supply chain. In 2010, we sold nearly 68 million gallons of biodiesel, representing approximately 22 percent of United States biodiesel production, and in 2011 we estimate that we sold between 146 and 148 million gallons of biodiesel, representing approximately a 116 percent increase over 2010 at the midpoint of our estimated gallons sold in 2011. Our strategy is to optimize and grow our core biodiesel business, to diversify into renewable chemicals and additional advanced biofuels, and to expand internationally.

The firm has grown by acquiring smaller regional biofuel processors and runs six biodiesel plants, with a total nameplate production capacity of 212 million gallons per year. The firm believes its "fully integrated approach, which includes acquiring feedstock, managing biorefinery facility construction and upgrades, operating biorefineries and marketing renewable products" positions it to capitalize on the growing demand for biodiesel, renewable chemicals and other advanced biofuels. Feedstocks at REGI include inedible animal fat, used cooking oil, and inedible corn oil.

According to the United States EIA, the domestic market for distillate fuel, which includes biodiesel, was 52.7 billion gallons in 2009, the latest year for which data is available.

Another excerpt from the S-1:

The biodiesel industry depends on governmental programs that support a market for biodiesel that might not otherwise exist. The most important of these government programs in the United States is RFS2, which requires that a certain volume of biomass-based diesel fuel, which includes biodiesel, be consumed. RFS2 became effective on July 1, 2010 and applies through 2022. We believe that the increase in demand for our biodiesel in 2011 is directly attributable to the implementation of RFS2. In addition, we believe that biodiesel prices in 2011 have benefited significantly from RFS2.

The main institutional shareholders of the firm are Bunge North America, ED&F Man Holdings, entities affiliated with NGP Energy Technology Partners, USRG Holdco and West Central Cooperative.

The greentech industry is not monolithic: solar, wind, smart grid, and liquid fuels have widely divergent dynamics, commercially and technically. But the first IPO and the first greentech IPO of the year can set the tone for future public offerings. Greentech IPO aspirants such as BrightSource Energy, Silver Spring Networks, Enphase and their venture capital investors will be watching REGI's maiden offering very carefully.

Source: Renewable Energy: First IPO Of 2012