Biofuels Business - August, 2011 - (Page 15)

FEATURE: MAKING THE DEAL and are likely to acquire assets for cash or stock. Combination are likely to be done with the acquiescence of existing lenders and could be all-equity deals and even multi-party roll-ups. Foreign buyers, which haven’t been signiﬁcant in the industry to date, could come in with adequate ﬁnancial resources to pay cash for assets and take out existing debt. AUCTION BLOCK Auctions are one possibility for selling ethanol plants and equipment. An auction provides an end date for when a deal will be done, as well as aggressive marketing, Allison Guyton with Maas Companies told Biofuels Business in an interview. Maas has sold more than 70 ethanol, biodiesel and alternative fuel properties and equipment. “The market is not strong enough right now that you can just list a property, and it will magically sell,” she said. “You have to be aggressive to get it sold.” Maas specializes in commercial and industrial assets in rural markets, such as ethanol and biodiesel facilities. These types of properties require more special marketing and attention to detail than those in a major metropolitan area, Guyton said. When Maas is preparing to auction a property or equipment, it contacts very speciﬁc trade outlets nationally and internationally as well as extensive inhouse lists of people looking for plants or equipment. They use the mail, internet, advertising and phone calls to pitch the property to potential bidders. “Each plant is different. Some have equipment that can go into a different market,” she said. Biodiesel and ethanol plant auctions are cyclical, Guyton said, with periods that are extremely busy followed by a leveling off. In the last several years, Maas has almost always had a biodiesel or ethanol plant on its project list, she said. When preparing a facility for auction, Guyton said Maas will talk with the seller about its options such as sell- ing the property together or breaking it into lots. The ideal option varies from plant to plant, depending on factors such as whether the land is owned or leased, or if the equipment is owned by different individuals. Guyton’s strongly advises that the seller maintains the integrity of the fer. A seller will have to disclose if the licensing is or is not included. “It’s something that has been brought to light more recently. Most people are trying to work together,” Guyton said. “With a very high end piece of equipment, it does no good if it goes to scrap.” It’s hard to say how much value is re- An auction provides an end date for when a deal will be done, as well as aggressive marketing. equipment and property, so that it’s worth something when it’s sold. It typically takes 90 to 120 days to get to auction, depending on how big it is and where the property is located, she said. Maas does auctions on site, online and by sealed bid. When it comes to buying a plant at auction, there are several steps a potential bidder should take, Guyton said. She suggests having a technical team that can visit a site to look it over to determine everything from the type of feedstocks that can be used to transportation services and commodity contracts. Maas sets up times where bidders can view the property or equipment and will also make appointments if those times won’t work. A bidder should ensure they have ﬁnancing in place prior to the auction, because the transaction must close within 30 days of the auction. “They will get extensive information for doing their due diligence with their ﬁnancing institution,” Guyton said, including a detailed catalog with a virtual tour. The day of the auction, a bidder may have to show proof of funds in order to get a bidding number. If they’re buying real estate, they’ll have to sign a purchase agreement and make a deposit. For equipment, payment will have to be made as well as removal arrangements. One essential part of due diligence prior to bidding on a facility involves licensing agreements. Many times, if a plant is going through foreclosure or bankruptcy, the license does not automatically transcaptured in an auction, Guyton said. In some cases it’s 10 to 30 cents on the dollar while in others it’s $1.10. For a buyer, there is a deﬁnite savings in the time it would take to build a facility from the ground up. “If you’re buying at auction, you don’t have to pay for the engineering time, the building time, the wait for getting equipment,” she said. “The greatest motivation is the ﬁnancial savings over starting from scratch.” BUSINESS, LEGAL FACTORS Before going forward with an acquisition, merger or auction, both buyer and seller must address some basic business considerations, said Donna Funk, member, biofuels group, Kennedy & Coe LLC, during FEW. First, buyers should identify their goal. Do they want to expand their current business line? Are they looking at vertical integration? Or are they diversifying into something different? Sellers should consider their motive in selling. They have to understand why they are selling early on to make sure they put the right picture out there for a potential target, Funk said. When a property or equipment is found, be sure to question what makes it a good deal. “Why are they looking to sell? What are the intangible aspects that aren’t on paper? Talk to other people in the industry or in the community that aren’t directly tied to the business.” It’s also important buyers know what ﬁnancial resources are available, 15 www.BioFuelsBusiness.com I BIOFUELS BUSINESS I August 2011 http://www.BioFuelsBusiness.com

Table of Contents for the Digital Edition of Biofuels Business - August, 2011

Biofuels Business - August, 2011
CONTENTS
Growing in a recession
CALENDAR OF EVENTS
BIOFUELS BUSINESS NEWS
BIOFUELS MARKET REVIEW - Wheat
COUNTRY FOCUS - Focus on Costa Rica
FEATURE - Making the Deal
PRODUCTS & EQUIPMENT
SUPPLIER NEWS
AD INDEX

Biofuels Business - August, 2011