Initial Public Offering: Gevo, Inc.
FIN516: Advanced Managerial Finance
February 9, 2014
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 as Mechanotech, Inc. and changed its name in 2006 to Gevo Incorporated. Gevo Incorporated “is a leading renewable chemicals and advanced biofuels company.” (Gevo, 2011) They are looking for alternatives to petroleum-based products, by using “a combination of synthetic biology and chemistry”. (Gevo, 2011) They were founded in 2005 and known as Mechanotech, Inc. and changed its name in 2006 to Gevo Inc.
Gevo filed with the SEC for their IPO in August 2010. In their filing with the SEC, Gevo notes that investing with their company provides high degree of risk. They go on to note that those that are interested in investing with them need to consider all the factors. One of the biggest factors is their financial statements have shown losses since their inception and notable in 2007 - $7.2 million; 2008 - $14.5 million; 2009 - $19.9 million and the first quarter of 2010 showed losses of $7.9 million. They go on further to note they are a developmental stage company and their revenues are limited and have not generated any from the sale of isobutanol. They also note as a risk factor that their operating results will fluctuate in the future and could result in failing to meet expectations of investors and their stock price could decline. 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”. (Admin, 2010) 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 (Schrader, 2011) 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.” (Gevo, 2011) “UBS Investment Bank, Piper Jaffray, Citigroup and Simmons & Co. International are underwriting the offering,” (Schrader, 2011) 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...
References: Gevo. (2011). Retrieved February 1, 2014 from http://www.gevo.com/
Lane, J. (3/16/2011). Gevo raises $123.3 million in IPO after underwriters oversubscribe. Biofuels Digest. Retrieved February 1, 2014, from http://biofuelsdigest.com/bdigest/2011/03/16/gevo-raises-123-3-million-in-ipo-after-underwriters-oversubscribe/
Schrader, A. (2/10/2011). IPO of Englewood biofuels company Gevo surpasses expectations. Denverpost.com. Retrieved February 1, 2014, from http://www.denverpost.com/business/ci_17344644
Admin (2010, August 13). The Summer of IPOs: Gevo files $150M initial public offering : Biofuels Digest. Retrieved February 1, 2014, from http://www.biofuelsdigest.com/bdigest/2010/08/13/the-summer-of-ipos-gevo-files-150m-initial-public-offering/
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