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February 2025
Takeovers of lift manufacturers continue to receive great attention in the sector – above all the high company valuations. Why are these so much higher than for example for component manufacturers?
by Dr Lars Watermann
The world is unfair. I realized this once again when I recently had the opportunity to take a look at the sale documents for a lift component manufacturer. This was because at first glance, the valuation struck me as far too low. The ninefold of the EBIT – isn’t that far too little? As an M&A (mergers & acquisitions) advisor for numerous lift manufacturers, my experience, above all in the last ten years, has been that this multiplier has been several time this.
Don’t get me wrong: the component manufacturer valuations are completely sound, the M&A market of this industry is intact. They are textbook valuations of the kind that apply to 90 percent of all domestic companies. Rather, it is the exceptionally high manufacturer valuations that account for the high discrepancy within one and the same industry.
When I was reflecting on the reasons for these invisible chasms, I came upon five factors in which lift manufacturers clearly differ from their suppliers. In my view, it is precisely these five factors that explain the lever with which high, strategic company prices can be enforced.
Two economic pillars are better than one. Component manufacturers are frequently just restricted to supplying the parts ordered. By contrast, for lift manufacturers, business is only just getting started after providing their product. The magic word: aftersales. Never mind whether it is maintenance, emergency calls, shaft smoke extraction or repairing and troubleshooting - the operators conclude a subscription as it were for further services.
It doesn’t get any better, especially since maintenance agreements are characterised by long terms. Manufacturers can in turn decide on a project basis which suppliers they give preference to.
The current level of construction activity in Germany is a fiasco. Lift manufacturers are feeling this very keenly and as a result of course the component manufacturers as well. But the manufacturers have a decisive advantage: given that there are about 800,000 existing lifts, they can rely on modernisations or the complete replacement of lifts.
Thanks to this strategic option, coupled with the "parking metre model" in service, they cope well with hard times that are sometimes life-threatening for others.
Components are relatively easy to ship. Complete lifts by contrast are not, at any rate not at a reasonable price. Consequently, the sector is decentralised in location with many SME players, whose customers are above all to be found in the respective surrounding areas.
This regional character also guarantees that service technicians are on the spot quickly whenever needed. These local roots make replacing manufacturers very difficult.
A lift manufacturer without well-trained, experienced fitters is not worth much. Due to the shortage of skilled labour, there is fierce competition within the sector for experienced experts. At times, I have the impression that many takeovers within the manufacturing sector involve so-called 'acqui hires' – i.e. procuring skilled labour by buying another company.
To be clear: the value for the buyer does not just consist in the customer relationships and know-how but also in the highly-specialised personnel acquired through the transaction.
Analogously to the topic of acqui-hiring, buyers are above all exploiting the takeover of other manufacturers to expand their customer base. This is because manufacturers and their fitters have personal ties with the operators, also thanks to the service business. A third party normally cannot simply "poach" them. As a result, securing additional business by acquiring a new company and growing inorganically in this way is often most elegant solution.
In short, there is a whole series of reasons for the striking difference in the valuations of lift manufacturers and their suppliers. To draw on a well-known image: figuratively speaking, it is not the "shovel seller" who makes a fortune during a gold rush but the "shovel supplier".
You may not like it, since it appears unfair to some, but hardly any of the good fortune of the manufacturer rubs off on the supplier. But if a buyer can profit disproportionately from such an acquisition, a strategic price does at least appear completely logical.
How do you see this topic? Do you share my assessment or do you see things differently? Feel free to comment on the website of the LIFTjournal or send me a mail at vertraulich@watermann.ag. I look forward to a lively debate.
The author is managing director of Watermann Agens GmbH and specialised in company transactions in the lift sector.
More information: watermann.ag
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