Private equity companies weigh in on pellet business

Biomass Power & Thermal
By Lisa Gibson September 09, 2011

Wrapping up the first day of an educational North American Biomass Pellet Export Conference in New Orleans, two representatives from private equity companies shared their point of view on the pellet business. They both agreed that it’s challenging.

If tasked to describe the wood pellet business in one word, Carl Williams, principal of River Stone Holdings, said he would use challenging. The industry is fraught with challenges, he said. It’s nascent and fragmented. Economies of scale and scope are crucial, and it’s difficult to realize “cash on cash” returns. “I will tell you that it is possible to do that in this business, but it is extremely difficult,” he said. If you can show a bank pages of cash on cash returns, however, they’ll finance the project, according to Williams.

But without that, the key criteria for “culling the herd” of pellet manufacturers are: health and safety, sustainability, product quality, and reliability of delivery. “When you say a shipment of pellets will show up, it sure as hell better show up,” Williams said.

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