60 Business The EconomistNovember 16th 2019
M
odern citiesowe their shape to two
19th-century revolutions in personal
transportation. For urban sprawl, blame
the car. The skyscrapers that shape many of
the world’s most recognisable cityscapes
would not exist without fast and safe lifts.
Whereas the four biggest carmakers sell
two-fifths of road vehicles, liftmakers have
the market sewn up far more tightly. The
top four firms provide over two-thirds of
all lifts (see chart). More concentration
may be arriving shortly.
The potential for consolidation comes
courtesy of Thyssenkrupp. The struggling
German industrial conglomerate needs to
raise money as it restructures radically
after years of dwindling profits and strate-
gic missteps. Elevator Technology (et), its
lift business, could be worth €15bn-18bn
($17bn-20bn), roughly equivalent to Thys-
senkrupp’s market value (including net
debt). It plans to sell either a stake in the
business or the whole thing.
There are, it appears, plenty of takers
willing to jump on Thyssenkrupp lifts.
Groups that submitted bids before a dead-
line on November 8th are said to include
some of the world’s biggest private-equity
firms, such as 3g, Blackstone and Carlyle.
Finland’s Kone, another lift-industry giant,
has long coveted et. Japan’s Hitachi is also
likely to have put in a bid.
Whoever they turn out to be, the bidders
are attracted by an industry that has more
ups than downs. The global lift market wasworth $73bn in 2018 and the share prices of
lift companies have comfortably outper-
formed the capital-goods industry as a
whole for years, according to Morgan Stan-
ley, a bank. Lifts are a “great business”, ex-
plains Klas Bergelind of Citi, another bank,
because half of all revenues are recurring.
The cyclical business of selling and install-
ing new lifts is complemented by a steady
stream of income from maintaining and
modernising existing lifts.
That part of the business looks poised to
gain in importance. Citi expects annual
sales of new lifts to grow by around 1% for
the next few years. But that still leaves
plenty that need maintenance, including
the 900,000 or so installed in 2018, double
the number a decade earlier. Over 60% of
these were built in China, despite its cool-
ing property boom.
China’s vast servicing market may pro-
vide a long-term opportunity that helps the
big liftmakers weather the global slow-
down in new equipment sales. At the mo-
ment maintenance of a worldwide in-
stalled base of 16m lifts is a far less
concentrated business, largely thanks to a
bevy of small Chinese competitors. But as
lifts become connected devices, bigger
manufacturers could replicate their domi-
nance in the market for new lifts. They
have more money than smaller rivals to in-
vest in technologies to diagnose problems
remotely in real time, predict failures and
prevent breakdowns.
Which way will etfall? A sale to a priv-
ate-equity firm would quickly raise the
cash Thyssenkrupp urgently needs. But it
would yield none of the economies of scale
that a tie-up with another liftmaker could
produce. Hitachi, strong in its home mar-
ket, will see this as its one opportunity to
elevate itself into the global big league. And
as Jefferies, another bank, observes, Otis
and Schindler may not be content to
“watch from the sidelines”.
The firm that has courted etthe longest
is Kone. Together the pair would create a
firm as towering as the skyscrapers their
products make possible. The businesses
are geographically complementary: etis
stronger in America, Kone does better in
China. Combining their service networks,
research and development and the like
might save €1bn a year. But overlap in Eu-
rope will trouble competition authorities.
Thyssenkrupp may prefer a deal with fewer
potential regulatory complications.
Bringing together the world’s two most
innovative liftmakers would certainly lift
architects’ spirits. etis testing multi, a
ropeless system that uses linear motors to
allow its lifts to travel up, down and side-
ways. Kone has developed a carbon-fibre-
composite cable that allows ever longer tra-
vel heights—and so taller structures. To-
gether these two technologies could
reshape the city once again. 7A mega-deal and new technology may
sustain an enduring oligopolyLiftsAscending scale
Lift riftSource: CitigroupGlobal lift and escalator market shares
2018, % of unitsNew equipmentMaintenance0 20 40 60 80 100Kone Otis Schindler
Thyssenkrupp Hitachi To s h i b a
Mitsubishi Fujitec Other0 20406080100The singularity is hereSources: Press reports; company reports;
National Retail Federation; Forrester ResearchAlibaba, Singles’ Day, time needed to generate
1bn yuan in gross merchandise valueGross retail sales/merchandise value
2019 or latest, $bnOnline shopping holidays
Gross merchandise value, $bn2013
2014
2015
2016
2017
2018
20196m 7s
3m 0s
1m 12s
52s
28s
21s
14sSingles’ Day (China, Alibaba)Valentine’s Day (US, including offline)Black Friday & Cyber Monday (US, online retailers)Mothers’ Day (Brazil, including offline)38.420.714.16.10102030402012 13 14 15 16 17 18 19Singles’ Day
Black Friday &
Cyber MondayIn 1993 a group of male students at
Nanjing University in China decided to
celebrate their singledom. The annual
date would be November 11th, comprised
of four lonely 1s. The story may be
apocryphal. But since 2009 Alibaba,
China’s e-commerce giant, has turned
Singles’ Day into a very real shopping
frenzy. It has long since eclipsed America’s
Black Friday and Cyber Monday online
sales combined. This year Taylor Swift
performed at the countdown. In the next
24 hours Alibaba sold $38.4bn-worth of
merchandise. Competitors like jd.com and
Pinduoduo have piled in. Some people
worry that what began as a lighthearted
excuse to treat oneself has turned into a
high-pressure version of Valentine’s Day.
Others decry the harsh conditions
workers face in order to meet demand and
the holiday’s environmental impact. But
shoppers certainly seem to like it.One for the money