[ industry trends ]
valuations based on hockey-stick green hydrogen growth are gone.
Looking for special situations where some key components of value can be salvaged from the wreckage may be a relevant buy-side strategy to follow.
Engaging with potential partners to let them know the olive branch is there if and when they need it will also be prudent.
It might appear that there is less risk in investing in this area than there was three years ago. Valuations in this market are more realistic than they were when multiples were in the thousands or loss-making entities were being valued for hundreds of millions of dollars.
When deals come, valuations may largely be influenced by competitive bidding, with the price based on the strategic value of the jewel in the target’ s crown rather than a bottom-up valuation of the entire entity based on its revenue projections.
Despite current valuations of players in the hydrogen electrolyser value chain being lower than they were some years ago, no investor ought to take the risk of buying assets that are likely to decay their value to zero. Due diligence, adherence to compliance rules, and prudence will remain the order of the day.
Exits and hopes for start-ups
The start-up CEO’ s hopes and dreams may come true. Perhaps customers will arrive, and orders will eventually begin to flow. Perhaps this next R & D investment will yield the killer product. Perhaps electrolyser build projects awaiting FID will come to fruition.
This must be the bottom. Things can only get better from here, right? Perhaps not.
For proactive sellers – the start-ups looking to exit whilst the going is good or those running out of capital – there are actions they can take to hedge against the risk of being left with nothing. Or worse, being left with a heavy burden of debt.
When all was going well, there was a pitch-deck at the ready to show to potential investors. Now that there is a more nervous green hydrogen backdrop, a deck still needs to be at the ready. Different messages, different target audiences, different terms. But being realistic and being prepared will mean that start-up CEOs are likely to have some kind of leverage if the axe begins to fall.
Talking to potential future partners now, whilst things are still going well, will be a wise investment of the CEO’ s time. After all, their primary role is to increase the value, or at least preserve the ongoing viability, of the entity they lead.
Or, they may wish to align with an ambitious investor, playing the consolidation game from the driving seat. Do to others what they might have done to you. Who knows, the start-up CEO may find themselves elevated from founder to the leader of a major green hydrogen electrolyser group overnight.
About the author
Stephen B. Harrison is the managing director of sbh4 consulting. A major focus of his work is strategic and technoeconomic evaluation of electrolyser projects and technologies on behalf of investors and banks. His expertise in market, commercial, and technical due diligence is based on a foundation of many years in industry, where he operated at a senior executive level. In the past seven years, his insights have matured, and his skill have been sharpened by supporting investors with more than 30 buy-side due diligence cases through sbh4.
22 Hydrogen Tech World | Issue 21 | April 2025