CMA refers gyms merger for in-depth investigation
27 Jun 2014 10:29 AM
The CMA referred the
merger between Pure Gym Limited and The Gym Limited for an in-depth merger
investigation.
This follows concerns that it
may lead to higher gym membership prices or a reduction in quality and choice
for customers.
This is the first time the
Competition and Markets Authority (CMA) has referred a merger for in-depth (or
Phase 2) investigation. As under the previous system (when the Office of Fair
Trading (OFT) would refer mergers for investigation to the Competition
Commission (CC)) a decision on the merger will be made by a group of
independent panel members supported by a case team of CMA
staff.
Pure Gym and The Gym are the
leading operators of budget gyms nationwide, with over 100 gyms between them
and achieving combined revenues of more than £50 million. The budget gyms
sector is a fast-growing part of the UK fitness market and both Pure Gym and
The Gym have significant expansion plans.
The CMA examined the effect on
competition in the provision of gyms at both a national and local level. It
found that the merging firms operate similar business models with 24-hour
opening, low prices, and a no-contract offering and considers that they compete
closely in most local areas where they overlap. After careful consideration,
the CMA found concerns that the merger may substantially lessen competition at
both a national level and in 14 local areas, which may result in higher prices
or a reduction in the service offered by the merging gyms.
The CMA is also concerned that
the merger might affect potential competition as without it the parties’
expansion plans could have led to them competing in additional local areas. It
considers that further analysis is required on this matter.
The CMA has examined the entry
and expansion plans of other budget gym operators but has not at this stage
found sufficient evidence that this would offset the loss of rivalry between
the parties.
The parties offered undertakings
to resolve local concerns, but the CMA was not confident that these
undertakings would resolve in a clear-cut manner the competition concerns it
has identified at this stage of its investigation.
Andrea Coscelli, Executive
Director of Markets and Mergers and decision maker in this case,
said:
This deal brings together the 2
main national operators in the budget gyms sector. Budget gyms provide a low
and affordable gym offer to a range of customers across cities and towns in the
UK. The market is growing and while other operators are seeking to establish
new budget gyms and grow their market share, Pure Gym and The Gym are the
largest budget gyms by some distance with significant expansion plans of their
own.
We have found evidence which
indicates that the merger could raise competition concerns both nationally and
in a number of local areas and could impact the parties’ expansion plans
leading to higher prices, reduced service or less amenity for local budget gym
users across the UK.
Given the concerns about the
potential effect on customers identified by our Phase 1 investigation and the
need to look closely at this developing sector, we are now opening a detailed
investigation into this merger.
The deadline for the final
decision on the merger is 10 December 2014.
Notes for
editors
- The CMA is the UK’s
primary competition and consumer authority. It is an independent
non-ministerial government department with responsibility for carrying out
investigations into mergers, markets and the regulated industries and enforcing
competition and consumer law. From 1 April 2014 it took over the functions of
the CC and the competition and certain consumer functions of the OFT, as
amended by the Enterprise and Regulatory Reform Act 2013. For more information
see the CMA homepage. For CMA
updates follow us on Twitter @CMAgovuk, Flickrand LinkedIn.
- The merger will consist of
bringing Pure Gym Limited and The Gym Limited together in a newly formed entity
under the common control of their current respective shareholders, CCMP Capital
Advisors LLC and Phoenix Equity Partners. The merger has not yet
completed.
- The Reference Test – under
the Enterprise Act 2002 the CMA has a duty to make a reference to Phase 2 if
the CMA believes that it is or may be the case that a relevant merger situation
has been created, or arrangements are in progress or in contemplation which, if
carried into effect, will result in the creation of a relevant merger
situation; and the creation of that situation has resulted, or may be expected
to result, in a substantial lessening of competition within any market or
markets in the United Kingdom for goods or services.
- Under the Enterprise Act 2002 a
relevant merger situation is created if 2 or more enterprises have ceased to be
distinct enterprises; and the value of the turnover in the United Kingdom of
the enterprise being taken over exceeds £70 million (‘the turnover
test’) or as a result of the transaction, in relation to the supply of
goods or services of any description, a 25% share of supply in the UK (or a
substantial part thereof) is created or enhanced (‘the share of supply
test’).
- All the CMA’s functions in
Phase 2 merger inquiries are performed by Inquiry Groups chosen from the
CMA’s panel members. The appointed Inquiry Group are the decision makers
on Phase 2 inquiries.
- An Inquiry Group is appointed
for each inquiry, supported by a case team of CMA staff. Under the Enterprise
and Regulatory Reform Act 2013, the Chair of the CMA is responsible for
identifying and appointing the Inquiry Group that will conduct a particular
inquiry and for selecting one of them to act as chair of the Inquiry Group (the
Inquiry Group Chair). In practice, the Chair of the CMA will delegate these
responsibilities to the CMA Panel Chair.
- The CMA’s panel members
come from a variety of backgrounds, including economics, law, accountancy
and/or business; the membership of an Inquiry Group usually reflects a mix of
expertise and experience (including industry experience).
- The Inquiry Group may extend the
24-week period within which it is required to publish its report by no more
than 8 weeks if it considers that there are special reasons why the report
cannot be published within that period.
- The text of this decision will
be placed on the case page as
soon as is reasonably practicable.
- Enquiries should be directed
to Rory Taylor or
by ringing 020 3738 6798.