Intangible Value Going Up: Elevators As A Service

Like many sellers of tangible products in the digital era, manufacturers of elevators are finding that the intangible service contracts sold with them are more profitable.

And on top of that, they can now sell advertising for the screens riders watch for the 30 to 60 seconds in which they are held captive in that cabin. JL


The Hustle reports:

Thyssenkrupp, the German engineering giant, announced it would sell its elevator business to private equity companies for $18.9B, more than 2x the value of the entire parent company. And as elevators become more complex, giants like Otis have begun to sell subscription-based management services.That service revenue is going up… and fast. In 2018, Otis raked in $12.9B in revenue. 45% of its revenue comes from the sales of new equipment and 55% comes from service.

After ups and downs, Thyssenkrupp sells its elevator business at a top-floor price

Thyssenkrupp, the German engineering giant, announced last week that it would sell its elevator business to a group of private equity companies for $18.9B — more than 2x the value of the entire parent company. The sale was a last-ditch attempt to turn around years of declining profits. But it was also the largest private equity deal in Europe since the 2008 financial crisis. Wait a second: How did elevators get so valuable? Simple: The market is dominated by an elevator-gopoly that keeps prices at the top floor. Four companies command more than 60% of the elevator market:  Otis  Kone Oyj  Schindler  and Thyssenkrupp  In 2006, these 4 companies (along with rival Mitsubishi Elevator Europe) were found guilty of price fixing. They paid fines but continued to dominate the lucrative lift business. But even oligopo-vators couldn’t lift Thyssenkrupp’s load After years of declining revenue in a struggling German economy, even Thyssenkrupp’s moneymaking elevators could no longer hold up its other businesses.  Thyssenkrupp’s debt got so heavy — $7.1B on its latest earnings statement — that activist investors began to call for the company to sell off its elevator business to pay down debts. And so they did… for $18.9B, or about 2.8x the entire parent company’s market cap of $6.7B. Next stop? Elevators-as-a-service The elevator market is expected to remain strong thanks to increasing construction of tall buildings, particularly across Asia (more than 60% of new elevator installations occur in China). And as elevators become more complex, giants like Otis have begun to sell subscription-based management services. That service revenue is going up… and fast. In 2018, Otis raked in $12.9B in revenue. The company says 45% of its revenue comes from the sales of new equipment and 55% comes from service.