On April 26, IPO prospect Enerkem abandoned its plans for an IPO on the NASDAQ. The company had originally proposed a $125 million initial public offering, and had presented a promising technology for long-term investors with its waste-to-ethanol concept. The company's proven technology will eventually be used in the production of cellulosic ethanol to be derived from municipal solid waste - a win on two fronts when it comes to creating a greener planet. Yet in a public statement filed with the SEC the company wrote the following:
In light of current market conditions, the Company has determined not to proceed with the initial public offering contemplated by the Registration Statement.
It appears that in light of the poor market performance of its industry peers, the company decided to withdraw its IPO. Yet this also means that it is likely to seek continued funding from the private market. The company has had repeated success in the realm of private financing and it is likely that it will continue to raise capital from major investors including Valero (VLO) and Waste Management (WM). As a large ethanol company and a municipal waste company, Valero and Waste Management respectively have much to gain from the technology platform that Enerkem promises.
While Wall Street continues to poorly bat around the prospects of future energy concepts, ironically it's the United States government that is playing a larger role in the development of these technologies. Not long ago, the Canadian company had received loan guarantees (pdf) from two branches of the U.S. Government - the Department of Agriculture and the Department of Energy. Combined, the two departments dedicated $130 million in loan guarantees for the development of a plant in Mississippi, back in January 2011.
The implications of the company's withdrawal from its IPO process casts a long shadow upon the public biofuel space. Similar market condition issues were faced with an IPO of Ceres (CERE), a biofuel crop specialist, which faced delays in its own IPO back in early 2012. Yet the largest ramifications are both reflected by and reflective of the current market conditions of recent biofuel companies that underwent an IPO in the past two years. Companies like Amryis (AMRS), Gevo (GEVO), and Codexis (CDXS) all continue to trade under their IPO prices. For its part, Amryis had even helped contribute to the industry collapse through its inability to scale up its production facilities problem-free.
As the advanced biofuels industry continues to waiver on the market, Enerkem's withdrawal of its IPO is likely to have a resounding impact on the industry as a whole. The withdrawal is likely to be the final straw for many private investors as well as public investors when it comes to advanced energy concepts. In many ways, it will slow down the funding process by throwing a wrench in the financing system. While funding will flow, the terms will likely be less favorable. This serves to be quite unfortunate for an industry that is very much in need of capital in order to take test-proven concepts into actually scaling up to production facilities operating on the commercial scale.
Yet not all companies were created equal. Some are actually finding success in their secondary markets as they strive to bring production capacity online under limited financing. Coca-Cola (KO) recently partnered with Gevo in December 2011 for the development of a 100% renewable plastic bottle. Likewise Dow Chemical (DOW) recently finalized an offtake agreement with Solazyme (SZYM) for the purchase of millions of gallons of Solazyme's oils, which will be used for dielectric fluids. Clearly, it would appear that investors in this investment space may wish to pursue companies that are not reliant on their biofuel markets prior to having adequate production capacity in place.
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