Des Moines Business Record, IA
04-14-07
Biofuel boom produces new businesses in Iowa
By Sharon Baltes
sharonbaltes@dpcdm.com
During Monte Shaw's travels across the state, he sees new truck stops, diners
and even car dealerships springing up in communities that have ethanol or
biodiesel plants.
"There is simply no doubt that biodiesel and ethanol production is bringing new
life to communities and powering Iowa's economy," said Shaw, the executive
director of the Iowa Renewable Fuels Association.
But even in urban areas such as Greater Des Moines, which does not currently
have a production facility, the local economy is benefiting from the biofuel boom.
A handful of businesses have started here recently to support biofuel production,
and others are planning to relocate to the area to be closer to their customers
and potential employees. In addition, at least one local company is finding a
niche market in providing professional services for the state's growing renewable
fuels industry.
"The ethanol plants need legal services, risk management services and that sort
of thing, and a lot of that work is handled in cities like Des Moines," Shaw said.
"You might see new companies offering these services, or companies that
already exist are creating new products for this industry."
Here are a few examples of such companies:
Countryside Renewable Energy
Countryside Renewable Energy Inc. is a product of venture capitalist John
Pappajohn's efforts to help small, independently owned ethanol plants better
compete against large ethanol producers.
Dave Miles is chief financial officer of Countryside Renewable Energy Inc., a
company that plans to consolidate independently owned ethanol plants.Photo by
Duane Tinkey
The company started last fall, and has a staff of three at its downtown office.
Dave Miles left a job at Principal Financial Group Inc. in the mergers and
acquisitions department to become Countryside's chief financial officer.
Previously, Miles owned an asset management firm. With Countryside, his job is
to recruit ethanol plants to consolidate their operations. Under the plan,
shareholders of individual plants would trade stock in their single plants for stock
in Countryside, giving them part ownership of several plants. If shareholders
wanted to sell their shares upon consolidation, Countryside would buy their
shares from them.
According to Miles, the structure provides an option that is not currently available
to investors in independently owned plants.
"A handful of these farmer-owned plants have chosen to sell out to larger
companies in recent years," Miles said. "To this point, your options have been to
sell out or stay independent. What we are trying to do is give them an alternative
where they can stay involved in the industry, but reduce their risk so they aren't
so dependent on a single plant."
Miles said trends in the ethanol industry are making it necessary for small
ethanol plants to consider options such as consolidation to remain competitive.
Over the past 24 months, a number of the largest ethanol producers have
significantly expanded their operations, such as publicly traded VeraSun Energy
Corp., based in South Dakota, and privately held Iowa Falls-based Hawkeye
Holdings.
By consolidating, plants are in a better position to negotiate with suppliers and
the large oil companies that buy ethanol, Miles said, and the various plants can
reduce operating costs by sharing "best practices"
So far, no plants have signed on with Countryside, but Miles said a number of
plants have expressed interest in the plan. Over the past 60 days, interest has
been particularly strong because of market conditions, which he thinks will lead
some plants to join Countryside this year.
"In 2006, the profit margins were very strong for ethanol, so people were not
thinking about making a change," he said. "But lately, corn prices are going up
and ethanol prices coming down somewhat. It's still a good business to be in, but
everything isn't as rosy as it was."
The long-term plan is to take Countryside public. The timing of the public offering
will be linked to reaching a critical mass in the number of gallons of ethanol being
produced by Countryside's plants. Miles wouldn't say what that target number is.
"For an independent plant owner, it's very difficult to sell those shares for full
value because there is limited trading in those shares," Miles said. "Going public
would give our investors some liquidity and give them the opportunity to sell
when the time is right for them.
"Rarely do any of us invest in things without the intention of eventually selling,"
he said.
Novozymes
A Danish biotechnology company is in the process of opening an office at the
Iowa State University Research Park in Ames.
Novozymes, which supplies enzymes for ethanol production and other
applications, plans to transfer one or two of its scientists from North Carolina to
Ames to establish the Iowa office and help recruit additional scientists from the
Midwest, according to Yokima Cureton, communications manager for
Novozymes' U.S. division. The company, which officially announced its
expansion to Iowa in March, hosted a career fair in January on the ISU campus
to interview candidates for the job openings. Cureton is unsure how many
employees will be based at the new office during its first year of operation, but
expects good potential for growth.
"We already count among our customer base nearly 20 plants across Iowa alone,
among them both dry-grind and wet-mill facilities, and we expect the industry to
expand more over the next year or so," Cureton said.
Novozymes employs 4,500 people worldwide and operates a research center in
Davis, Calif., and a research and production center in Franklinton, N.C., and
Salem, Va. The company produces more than 600 products, which are sold in
more than 130 countries for use in biofuels, textiles, food and other applications.
Cureton said Ames was selected for the new office based on its Midwest
location, which is central to the company's customer base of ethanol plants, and
Novozymes leaders were impressed with the community's high quality of life and
the proximity to academic experts in the biofuels industry at the university.
"Other locations were considered, but in terms of meeting the needs of our
customers and fostering collaboration, the research park in Ames turned out to
be the optimal location," Cureton said.
Cureton expects the Ames office to be fully operational by June.
Third Inning Solutions
While working for a local law firm, Brian Green saw an increase in recent years in
clients in the renewable fuels industry. When one local businessman asked
Green for advice on the steps involved in an ethanol project, he decided that the
demand for project development services in the renewable fuels industry was
strong enough to support a business.
Phil Stover (left), Kevin Snyder and Brian Green hashed out company plans
during the third inning of an Iowa Cubs baseball game last summer..Photo by
Duane Tinkey
In August, Green started Third Inning Solutions Inc., a company that works with
biofuel plant developers from the business plan phase through the construction
process.
At the end of last year, Phil Stover and Kevin Snyder joined Green as owners of
the company. Stover, also an attorney, was most recently employed as general
counsel for Walters Cos., and Snyder was an accountant with McGowen, Hurst,
Clark & Smith P.C. Their combined expertise makes them well-suited for their
new roles, Green said.
"When you boil the plant projects down, there are industry things you need to
know, but at its core, it's the same as developing any business - it's due diligence
and making sure you're doing all the research," Green said. "We are all detailoriented types, which is important in this industry."
Vision Fuels LLC, led by local businessman Dave Walters, was Third Inning's
first client, and the company is now involved with planning 10 plants. Stover said
Third Inning's services are in high demand because of constant change in the
biofuel industry.
"We used to have a checklist of 124 critical steps in the development process,"
Stover said. "Now we're up to 177 items on that list." Requirements for railroad
access, for example, have changed in the past several months.
Third Inning currently employs nine people as project coordinators and support
staff, and two more employees will start in the coming weeks.
The company has outgrown its leased office space in Des Moines and plans to
move to its own building at Jordan Creek Crossing in West Des Moines in
November.
"It's not very often that you find an industry that is growing at the levels that the
renewable fuels industry is growing, and it also happens to be in your home
state," Green said.
Gallagher Benefits Services
Although the company is not new to Central Iowa, the renewable fuel industry is
creating new business opportunities for Gallagher Benefits Services Inc.
Last June, the West Des Moines-based employee benefits brokerage formed an
alliance with the Iowa Renewable Fuels Association. Now, the company creates
employee benefits packages for a majority of the association's members.
"We have a lot of clients in general that are experiencing substantial growth in
their business as a result of the renewable fuels industry, and we have added a
fair number of plants to our resume," said Don Laster, the executive vice
president of Gallagher Benefits.
Laster started working with clients in the renewable fuels industry about four
years ago. Entering that market was a natural extension of his company's focus
on rural manufacturing, Laster said. The types of services he provides to biofuel
production plants include core employee benefit programs such as medical and
dental insurance, life insurance, short- and long-term disability and retirement
plans.
"A lot of times, these plants are staffed very thin, and we support them by
providing them with these packages," Laster said.
Laster said he may assign additional employees at his company to work on the
biofuel projects as this segment of his business continues to grow.
"In a way, everyone in the state of Iowa has been favorably impacted by the
industry's growth," Laster said. "I see how renewable fuels are driving a lot of
jobs and helping farmers and Main Street Iowa. It's exciting, and I'm thrilled to be
a part of it."