SPACs are back in vogue in 2023, after falling hopelessly out of fashion last year, as facilitators of Europe’s coming hydrogen revolution.
Electrolysis is the key to understanding the potential of hydrogen as a fuel of the future. The process uses a current to separate hydrogen from oxygen in water. If the current comes from renewable sources, it can produce fuel without emitting carbon dioxide.
The production of green hydrogen is a complex process, according to Chris Staples, partner at Linklaters and co-head of the firm’s Global Commodities group. It also requires a huge amount of capital expenditure (capex), he added.
Fuel of the future? Massive capex? This formula is music to the ears of the growth-hungry SPAC promotors of special purpose acquisition companies (SPACs), who like to offer large cheques to entrepreneurs with ambitious plans to change the world.
Recent deals include Spanish green hydrogen platform H2B2 Electrolysis Technologies, which entered a definitive agreement to go public via a merger with New York City-based SPAC RMG Acquisition Corp. III [Nasdaq:RMGC] in May. The purchase price is USD 750m (EUR 680m) – more than the total volume of hydrogen deals in Europe, the Middle East and Africa (EMEA) in 2019 or 2020.
Another recent SPAC deal involved Element 2 Limited, a UK-based hydrogen refuelling business, which agreed to an all-share deal worth GBP 120m (EUR 140m) with blank-cheque company Pineapple Power Corporation [LON:PNPL] in April.
The total volume of hydrogen deals in EMEA was EUR 1bn over 22 deals in the year to date (YTD), compared to EUR 2.2bn over 45 deals in FY22, according to Mergermarket data.
The overall trend is ballooning upwards. The data shows deal volumes of just EUR 713m in FY21 and EUR 260m in FY20, up from EUR 227m in FY19 before the Russian invasion of Ukraine put energy independence (including hydrogen) firmly on dealmakers’ agendas.
Conventional public markets have also sat up and taken notice of the trend, as Dealspeak EMEA’s friends at ECM Pulse noted in July. Industrie De Nora [BIT:DNR] led the way last year, with a listing worth USD 507m. Thyssenkrupp Nucera’s [ETR:NCH2] USD 658m IPO this year is the largest hydrogen listing in Europe to date.
Light element, heavy dealflows
SPAC promoters and their advisors will be able to find plenty of potential targets on Mergermarket’s next-generation site. What about Molecular Energies [AIM:MEN], a UK-based energy company? It announced plans to carve out its Green House Capital alternative energies division and prep an IPO in June. The company plans to retrofit heavy goods vehicles with a mix of hydrogen and diesel, among other projects.
Outside Europe, AMEA Power, a Dubai-based developer, owner and operator of renewable energy projects, announced in July that it raised USD 75m equity round from SoftBank Group Corp. (SBG) of Japan. Its first funding round will be used for projects in power, water and green hydrogen. Could SPAC cash help it move faster?
Looking further ahead, industrials, investment funds and experts in oil and gas are pooling their expertise in joint ventures (JVs), which will drive activity in the future, Linklaters’ Staples said. “Many of these projects will seek outside investors within three to four years.”
One recent example of a JV involves Heineken [AMS:HEIA], which is building a low-carbon fertiliser plant with partners in Spain. The plant will produce nitrogen fertilisers from renewable electricity and hydrogen, as reported. The total investment is expected to be around EUR 1.7bn.
Hydrogen might be the lightest element, but bet on heavy deal flows in the years ahead, with SPACs likely to lead the way.
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