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More PE-Backed Ethanol Troubles: Hawkeye Pulls IPO

Hawkeye Holdings, an ethanol company owned by Thomas H. Lee Partners, today pulled the plug on its proposed $350 million IPO. It had postponed the offering back in September (just as it was scheduled to price), with CEO Bruce Rastetter saying: “We have decided to temporarily delay our IPO in light of current conditions in the equity markets, and the recent pullback in the energy segment in particular, which are not conducive at this time to achieving appropriate valuation.” 

What Rastetter likely was referring to was the lousy aftermarket performance of two other PE-backed ethanol companies that went public earlier this year. VeraSun Energy (NYSE: VSE) seemed like a big hit when it raised $420 million back in June, with a stock price that climbed up to $30 per share on its first day of trading. But it’s been almost all downhill from there. The stock slipped below its $23 per share IPO price just two months later, and even fell as low as $14.88 per share. For the past week it’s been at around $22 per share. Aventine Renewable Energy has suffered even worse since its June IPO, which raised around $390 million. The Pekin, Ill.-based company priced at $43 per share, but opened trading today at 23.14 per share.

VeraSun shareholders include Bluestem Capital Partners and Eos Partners, while Aventine is backed by MetalMark Capital.

And it’s not terribly difficult to find the culprit… just look in the mirror.

Ethanol and other biofuels were being considered economic messiahs just a few short months ago, but that was largely because gasoline was at $3 per gallon. Sure, some people were sincere about energy independence, but most folks just paid it lip service (including our elected officials). Now that the price is back down to a relatively low $2-$2.20 per gallon, a lot of the pro-ethanol hue and cry has quieted.

Of equal import, the price for ethanol prices rose at the very same time that gasoline was falling. This might seem counter-intuitive to supply and demand – since there are a record number of ethanol plants – but it was based on the average selling price for a bushel of corn (which apparently was driven by other factors).

None of this is to say that private equity firms should run away from ethanol, or that all the biofuel-enamored VCs should return to their software roots. In fact, an article in this week’s Buyouts Magazine argues that many of these deals might turn out just fine in the end (in part thanks to an expected drop in ethanol prices).

But there is little doubt that Thomas H. Lee mistimed the market with Hawkeye. The Boston-based firm acquired its 80% stake just this past May, with an IPO prospectus arriving only three weeks later. It was the ultimate quick flip attempt, and seems to have failed. But hey, maybe the new Congressional guard will actually get serious about energy independence. Then we’d truly have something to be thankful for.