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

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.

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:

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.

After years of declining revenue in a struggling German economy, even Thyssenkrupps moneymaking elevators could no longer hold up its other businesses.

Thyssenkrupps 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 companys market cap of $6.7B.

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.

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