Cameron Lynch, co-founder and managing partner at Energy & Industrial Advisory Partners, sees prodigious opportunity to pick up mandates in the hydrogen sector as young companies and early movers attract well-capitalized investors looking for auspicious valuations.
The firm, a three-year-old boutique investment banking outfit with offices in New York and Houston, is broadly committed to the energy transition, but is recruiting for new personnel with hydrogen expertise, Lynch said, adding that he is preparing for a new level of dealmaking in the new year.
“I think we can all expect 2023 will be even more of a record year, just given the appetite for hydrogen,” Lynch said. “Hydrogen is one of our core focuses for next year.”
Lynch started his career as a civil & structural engineer and moved into capital equipment manufacturing and leasing for oil & gas, and also industrial gasses –things like cryoge
nic handling equipment for liquid nitrogen. He started the London office of an Aberdeen, U.K.-based M&A firm, before repeating that effort in New York.
Founding EIAP, Lynch and his business partner Sean Shafer have turned toward the energy transition and away from conventional energy. The firm works on the whole of decarbonization but has found the most success in the hydrogen space.
Earlier lifecycle, better valuations
Hydrogen intersects with oil& gas, nuclear, chemicals, midstream companies, and major manufacturing.
Large private equity funds that want to get into the space are realizing that if they don’t want to pay “ridiculous valuations for hydrogen companies” they must take on earlier-stage risk, Lynch said.
Interest from big private equity is therefore comparatively high for early-stage capital raising in the hydrogen sector, Lynch said, particularly where funds have the option to deploy more capital in the future, Lynch said.
“They’re willing to take that step down to what would normally be below their investment threshold.”
Lynch, who expects to launch several transactions in the coming months with EIAP, has a strong background in oil & gas, and views hydrogen valuations as a compelling opportunity now.
“It’s very refreshing to be working on stuff that’s attracting these superb valuations,” Lynch said.
There’s a lot of non-dilutive money in the market and the Inflation Reduction Act has been a major boon to investors, Lynch said. For small companies, getting a slice of the pie is potentially life changing.
The hydrogen space is not immune to the macroeconomic challenges that renewables have faced in recent months and years, Lynch said. But as those same challenges have accelerated the move toward energy security, hydrogen stands to benefit.
Supply chain issues post-COVID pose a potential long-term concern in the industry, and equity and debt providers question the availability of compressors and lead times.
“I would say that’s one of the key issues out there,” Lynch said. There’s also the question of available infrastructure and the extent to which new infrastructure will be built out for hydrogen.
EIAP sees the most convincing uses for hydrogen near term in light-weight mobility and aerospace, Lynch said. The molecule also has a strong use case in back-up generation.
Hydrogen additionally presents companies in traditional fossil fuel verticals the opportunity to modernize, Lynch said, citing a secondary trade EIAP completed earlier this year
California’s Suburban Propane Partners acquired a roughly 25% equity stake in Ashburn, Virginia-based Independence Hydrogen, Inc. The deal involved the creation of a new subsidiary, Suburban Renewable Energy, as part of its long-term strategic goal of building out a renewable energy platform.
