Disruption is hitting the construction industry
A new joint venture by Flex and RIB is establishing an international platform that “reduces costs, shortens life cycle times, improves efficiency and helps complete projects on schedule” (equinet Bank, Feb 2017).
A recent report from Frankfurt-based equinet Bank quotes the new joint venture (JV) as a major reason why the bank sets a conservative target share price for RIB Software AG of €16.50 – and €22.50 using a less conservative but not aggressive approach. As equinet Bank explains, the JV – YTWO Formative - is not yet reflected in RIB’s actual share price of €12.81.
So why is it that equinet Bank credits RIB shares with “significant upside potential”? Because YTWO Formative has – and we quote - “the potential to be game changing for the construction industry”.
Let’s look at the YTWO platform and the customer benefits and business scope it represents.
Using RIB’s iTWO 4.0 software and Flex’s manufacturing, supply chain management and logistics expertise, YTWO Formative will digitise the full construction process from full virtualisation to supply chain execution and build. In other words, 3D design models are optimised and construction planned using iTWO’s advanced visualisation and simulation tools, and procurement and construction is aided using real-time supply chain and logistics systems.
Initially, YTWO Formative will focus on the international housing market and the first step will be to create catalogues of home and modular construction products in collaboration with the first customers.
Suppliers will maintain those catalogues with data on pricing, availability and estimated delivery times.
Customers will therefore be able to bypass resellers, who normally retain approx. 25% of order values. This provides housing companies with the opportunity to realise huge cost savings.
YTWO’s supply chain cockpit will provide customers with the status of all procurement at a glance, showing clearly which materials have been ordered and which have not been ordered yet. Real-time tracking and the exact location of materials will be provided; this provides critical information to the project. All in all, YTWO Formative represents a golden opportunity for 160,000 housing companies worldwide, offering lower material costs, shorter cycle times and less risk.
What’s in it for RIB and Flex?
RIB and Flex have each invested $60 million in the JV. So what do the companies envisage gaining from this investment?
RIB is providing YTWO customers with its state-of-the-art iTWO 4.0 software free of charge. In return, the company receives license fees and annual maintenance fees until transactions on the YTWO platform reach $1 billion, after which RIB will receive 1% of turnover every year. Customers will pay transaction fees of 2-9% to use the platform, and RIB will take part in those as well.
Flex will provide just-in-time delivery of construction materials and participate in transaction fees. What’s more, Flex is planning to start its own production of prefabricated building components itself that will be offered on the YTWO platform.
Even though YTWO Formative will initially focus on the housing markets in Germany, USA and China, the business potential is so huge that equinet Bank is projecting that an estimated $28.4 million USD EBITDA will be attributed to RIB already in 2021 – compare that to the group’s 2016 EBITDA of $33 million USD and it becomes clear just how big this new JV could become.
So why does equinet Bank value YTWO Formative so highly?
Not only is the aggregated transaction value of the global building and housing industry worth roughly $ 9 trillion USD; the construction industry is also growing and increasing its IT spending.
Add to that the fact that more than 60% of major projects come in over budget or behind schedule today, and the potential offered by the efficiency and cost savings YTWO Formative provides is enormous.
Customers – initially housing companies – reap all the benefits of RIB’s iTWO solution: full virtualisation including time, cost, materials and a high-quality 3D model. This enables the customer to eliminate design errors and inefficiencies, manage costs and cash flows and reduce risk. Add to that an integrated value chain with just-in-time delivery of lower cost materials and prefab components as well as full tracking information, YTWO Formative truly represents disruptive change that will benefit not only the involved parties but the entire housing market.