Initial Public Offering: Gevo, Inc.
FI516: Advanced Managerial Finance
June 5, 2011
An Initial Public Offering (IPO) is when a private company sells its first stock to the public. This is usually done by company’s who are smaller and or “younger” looking to raise capital in order to expand. It can however be done by larger private companies that want to become public. IPO’s can be a risky investment, as the investors do not know how the stock will do on its first day of trading, in addition, there are not much historical data either. In August 2010, Gevo Inc., filed for IPO with the SEC, which went public in January 2011.
Gevo Incorporated was founded in 2005 and known ...view middle of the document...
They also have licensed intellectual property with others that if they fail to meet their obligations, the company could suffer enough to lose its business all together. The company is currently in talks with “several ethanol plant owners that have expressed an interest in either selling their facilities to us or entering into joint ventures with us to retrofit their plants to produce isobutanol. Collectively, these ethanol plant owners represent over 1.8 BGPY of ethanol capacity. However, there can be no assurance that we will be able to acquire access to ethanol plants from these owners”. (SEC filing – company’s home website) Their plan is to target commercial production of their fuels by 2012.
Gevo had originally planned to raise at least $100 million in capital by selling over 7 million shares priced between $13-$15 per share when they first announced an IPO in August 2010. Then they realized with the prices they were looking at, $100 million was more realistic number. Gevo had priced their IPO at $15 per share on opening trading day in February 2011. It “debuted at $15.52, rose to $17.53 and before closing at $16.44” (website) they exceeded their expected the company’s share price and “sold 7.15 million shares with expected net proceeds of $95.7 million after underwriting discounts and other offering expenses.” (website) “UBS Investment Bank, Piper Jaffray, Citigroup and Simmons & Co. International are underwriting the offering,” (website) and have the option to purchase 1,072,000 additional shares. The overall succession of Gevo raising capital went above and beyond their expectations. “The company is touting that it will cost $40-45 million for each conversion of an existing ethanol facility to the production of biobutanol. The company is now projecting it will produce fuels and chemicals in the $3.20-$3.50 ramie in 2012, and reduce that cost to between $2.95 and $3.40 by 2015. Gevo is saying, also, that it can double the EBITDA of an ethanol facility via the conversion; at its projected yield of 101 gallons per ton of biomass, in this case corn.” (website)
In March 2011, Gevo hit a bump in the road with being charged with patent infringement they had with Butamax “relating to the production of isobutanol. Per their response to Delaware District Court "Our answer, filed in Delaware district court, formally denies all claims of infringement, as we use Gevo's Integrated Fermentation Technology(R) (GIFT(R)), which is covered by over 150 patent applications, and is a different approach than the one described in the Butamax patent," said Brett Lund, Gevo Executive Vice President and General Counsel. "We will vigorously defend against the claims asserted in the complaint." Since their first IPO trading, in March 2011, they traded up to 10% on their first day of trading. The underwriters exercised their option of the additional shares bringing total capital raised to $123.3 million. Gevo sold 8.223 million shares. They have followed in...