Office space merger prompts CMA concerns in central London
Regus’ acquisition of Avanta faces an in-depth inquiry unless it can address the CMA’s concerns about competition in serviced offices.
Regus plc (Regus) and Avanta Serviced Office Group plc (Avanta) both supply serviced office space in central London and Reading. Serviced offices provide centrally-managed, fitted and furnished space for businesses to occupy on a ready-to-go basis. The Competition and Markets Authority (CMA) found that Regus and Avanta competed closely in the supply of serviced office space in local areas within central London and Reading.
Following a phase 1 investigation, the CMA found that the merger raised competition concerns in the Hammersmith, Victoria, Canary Wharf/Docklands, Euston/King’s Cross and Paddington areas of central London.
Several customers, competitors and brokers raised concerns that in a number of these local areas there would not be sufficient competition following the merger, potentially leading to higher prices and/or a reduction in choice and quality for customers.
This merger will be referred for a phase 2 investigation unless Regus offers acceptable undertakings to address the competition concerns arising in these local areas in a clear-cut manner.
Andrea Coscelli, Executive Director, Markets and Mergers, and decision-maker in this case, said:
Serviced office space provides businesses, including start-ups and small and medium-sized enterprises (SMEs), access to a professional working environment on flexible terms without having to make significant commitments that conventional leaseholds can require. As such, serviced office space, as well as other newly developing office space business models, contribute to the growth of the UK economy. It is therefore important to ensure this marketplace remains competitive.
Following a phase 1 investigation, we found significant overlaps between the merging parties in several areas of central London. Our investigation found that the merging companies competed closely in these areas and that, following Regus’ acquisition of Avanta, there could be insufficient competition in these areas. This reduction in competition could lead to higher prices or a reduction in choice and quality for customers.
Regus has the opportunity to avoid a full phase 2 investigation by offering a solution that clearly addresses these concerns and safeguards the interests of customers.
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.
- Under the Enterprise Act 2002 (the Act) 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 Act 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 United Kingdom (or a substantial part thereof) is created or enhanced (‘the share of supply test’).
- The CMA’s duty to refer the merger for a phase 2 investigation under section 22(1) of the Act is not exercised whilst the CMA is considering whether to accept undertakings (if offered) under section 73 of the Act in lieu of a reference. Regus has until 25 November 2015 to offer an undertaking to the CMA that might be accepted by the CMA under section 73(2) of the Act. If no undertaking is offered or accepted, then the CMA will by 2 December 2015 refer the merger.
- 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. 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 full text of this decision will be placed on the merger case page as soon as is reasonably practicable.
- Enquiries should be directed to Siobhan Allen (siobhan.allen@cma.gsi.gov.uk, 020 3738 6798).
- For information on the CMA see our homepage, or follow us on Twitter @CMAgovuk, Flickr and LinkedIn. Sign up to our email alerts to receive updates on merger cases.