Dave Swanson, a Dorsey partner active in establishing financial and legal structuring for ethanol plants, is quoted in the October 2004 Ethanol Producer Magazine. Swanson notes that the ethanol industry’s financing structures have been shifting since the mid-to-late 1990s towards private equity funds and other institutional investors, a process he sees as an “evolution” rather than a dramatic overnight change.
The reason for this change, according to Swanson, is a high rate of return on investment for ethanol producers in recent years, together with a surplus of equity capital in the marketplace. Accordingly, new investors, such as private equity houses, well-known institutions, and money center banks, as well as marketers of ethanol and coproducts, are more willing to invest equity in ethanol production facilities.
The influx of private equity investment doesn’t necessarily spell the end of the traditional farmer-based investment, says Swanson. It remains a viable (if less utilized) ownership model. But if the investor-owned plants do not continue to treat farmer’s fairly, he suggests a more sophisticated, larger farmer-owned owbership model could emerge.