Information on the Target

On October 3rd, 2019, Linde plc participated in a fundraising initiative for ITM Power (ITM LN), a British manufacturer specializing in electrolysers designed for hydrogen generation. The fundraising effort successfully raised £52 million, which represented a significant share of ITM Power's market capitalization of £160 million at the time. Linde's investment of £38 million amounted to approximately 20% of ITM Power’s enlarged capital base, underscoring Linde’s confidence in the company’s future growth potential.

ITM Power has established itself as a leader in the renewable hydrogen space, particularly through its innovation in electrolysis technology. This technology is critical for producing hydrogen in an environmentally sustainable manner, positioning ITM Power as a pivotal player in the urgent transition towards greener energy solutions.

Industry Overview in the Target’s Specific Country

The hydrogen industry is gaining momentum globally, and the United Kingdom is becoming a key player in the diversification of energy sources. Hydrogen, the simplest and most abundant element in the universe, presents significant promise as a clean fuel alternative. Although hydrogen fuel lacks efficiency on a volumetric basis, it offers three times the energy per mass compared to conventional fuels like methane or gasoline. Importantly, its combustion releases no greenhouse gases, making it an appealing option in the pursuit of sustainable energy solutions.

Despite its historical utilization in niche applications since the 1930s, hydrogen has struggled to make a widespread impact in personal transportation. However, its characteristics lend themselves well to implementation in larger vehicles, such as buses and heavy goods vehicles (HGVs). The renewable hydrogen sector, particularly via water electrolysis, aims to address existing production challenges and environmental concerns by harnessing renewable energy sources.

Currently, hydrogen production methods primarily include coal gasification, steam reforming, and water electrolysis. While the first two methods contribute to significant greenhouse gas emissions, water electrolysis stands out as a more sustainable approach, whose environmental footprint depends on the energy sources utilized for the process. The transition towards renewable energy globally offers potential for hydrogen production to achieve lower emissions and capitalize on excess renewable energy to mitigate inefficiencies associated with electricity transmission and battery storage.

The Rationale Behind the Deal

Linde’s investment in ITM Power is strategically aligned with its ambition to lead the emerging green hydrogen market. The partnership solidifies Linde's commitment to advancing technology capable of producing green hydrogen through renewable energy—specifically, water electrolysis. This opportunity not only enhances Linde's production capabilities but also positions them favorably within a rapidly evolving energy landscape.

Through this investment, Linde is also benefiting from a joint venture established with ITM Power aimed at developing large-scale electrolysers (10MW+) globally. Their collaboration has already led to the installation of the world’s largest electrolyser, marking significant progress in delivering solutions for industries requiring green hydrogen.

Information About the Investor

Linde plc is a global leader in the industrial gases sector, recognized for its innovation and commitment to sustainability. With an extensive portfolio of products and services, Linde caters to various industries and has emphasized investments in clean hydrogen technologies. The company has positioned itself at the forefront of the energy transition, particularly focusing on technologies that facilitate the production of green hydrogen, thereby aligning profit objectives with environmental sustainability.

This investment in ITM Power is part of Linde's broader strategy to ensure its competitiveness and leadership in the industrial gas market, especially as global demand for green hydrogen continues to grow. Linde's expertise and resources will likely propel ITM Power’s advancements in electrolyser production, contributing to noteworthy future successes.

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The assessment of Linde’s investment in ITM Power demonstrates a well-considered approach to capital allocation within a rapidly growing segment of the energy market. The ongoing shift towards greener energy solutions positions hydrogen as a viable alternative, and Linde's early involvement through ITM Power provides them with a significant first-mover advantage. The partnership also reflects a prudent strategy to tap into the green hydrogen production space without overcommitting to specific renewable energy sources or fuel cell technologies.

In our opinion, Linde's stake in ITM Power is a promising investment, particularly given the recent market enthusiasm surrounding hydrogen and its applications. While volatility in share prices may cause fluctuations, the underlying technology's potential for sustainable energy production supports a strong value proposition. Moreover, by facilitating large-scale electrolysis projects globally, Linde and ITM Power can leverage their positions to capture substantial market share.

Overall, the collaboration is indicative of a forward-thinking investment strategy that aligns with evolving demands in the industrial gases sector. Linde's commitment to green hydrogen and sustainable technologies fosters the possibility of remarkable returns, making this investment not only strategically sound but also crucial for future competitiveness in a transitioning energy landscape.

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