Tuesday, July 08, 2014

Verdezyne: Future Takeover Target?

One of the most recent additions to our Beach Boys Index is Verdezyne, Inc. (private), a developer of alternative industrial chemicals.  The company is at an early stage, having no products near commercial stage not to mention no revenue.  Nonetheless, Verdezyne has achieved quite a bit of visibility.  In April this year, the company took in $48 million in new capital.  What a closing party they had!  President Obama came by to witness the signing.

Verdezyne has developed a platform for the fermentation of yeast strains that can be used in the production of bio-based chemicals.  The company’s scientists chose yeast over bacteria popular with other biofuel developers because yeast is a hardier more stable host.  The yeast can be used with a variety of feedstocks, a feature that gives the company options to reduce production costs  -  if Verdezyne ever gets to commercial stage.

Planned products include dodecanedioic acid, sebacic acid and adipic acid, all three of which are vital to common products we can all find in our homes and offices.  The foremost is used mostly in antiseptics.  China produces most of the world’s sebacic acid, which is used in plasticizers, lubricants, hydraulic fluids, cosmetics and candles, among other products.  Adipic acid is used in the production of nylon.

There is no trade at the end of this article.  Verdezyne is a private company.  Even qualified investors may be too late to the party to get a position in Verdezyne.  In my view, it is worthwhile to track alternative chemicals developers.  I believe they are more likely to produce profits than the biofuel products who are using similar technologies.  At least they may produce profits at an earlier stage than biofuel producers.  Furthermore, alternative fuels producers are more likely to become acquisition targets of established industrial chemicals companies.  These deals could have a positive impact on valuation multiples for the larger, established chemicals producers.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.


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