Exel Europe Ltd / NHS Logistics Authority / NHS Purchasing and Supply Agency

OFT closed case: Acquisition by Exel Europe Limited of the supply chain functions of the NHS Logistics Authority and the consumables procurement function of the NHS Purchasing and Supply Agency.

Affected market: Healthcare logistics

No. ME/2454/06

The OFT’s decision on reference under section 33(1) given on 19 July 2006. Full text of decision published 26 July 2006.

Please note that square brackets indicate text or figures which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.


Exel Europe Limited (Exel) is a UK subsidiary of Deutsche Post AG. Its core activities in the UK are contract logistics (including warehousing and distribution) and freight forwarding.

NHS Logistics is an operating division of the NHS Business Services Authority (NHSBSA). Its primary role is to provide a dedicated supply chain service to the English NHS for consumable products (ranging from medical and surgical supplies to stationery, cleaning materials and catering provisions).

NHS Purchasing and Supply Agency (PASA) is an executive agency of the Department of Health (DH). It contracts on a national basis for the purchasing of a range of products and services for NHS end users. It also has a function to advise upon and coordinate procurement across the health service and works with around 600 NHS Trusts and health authorities.


Once the transaction is completed, Exel will take over the supply of certain logistics and procurement services for consumable products that have previously been provided to the DH by PASA and NHS Logistics. Exel will [ ] from the NHSBSA, as well as acquiring other assets (such as IT and office equipment), contracts, the right to use certain NHS intellectual property and up to 1,600 employees currently working within NHS Logistics and NHS PASA under TUPE regulations.

The parties notified the agreement to the OFT on 1 June 2006 and the Office’s administrative deadline is 27 July 2006.


The logistics and procurement services being taken over by Exel are mainly provided to the DH by in-house arm’s-length bodies, and they currently have extremely limited turnover from sales of such services to third parties.

The parties indicate that if an open market value is attributed to these in-house services, either on the basis of current annual operating costs, or based on an estimate of Exel’s expected remuneration during the first year of the operation of the contract to supply the DH, that open market value would exceed £70 million.

Given that the contracts and assets are being transferred by NHS Logistics and PASA have an open market value, they are considered enterprises for the purposes of the Enterprise Act 2002.

The turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is therefore taken to be satisfied. The OFT therefore believes that it is or may be the case that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation.


Product market

The parties’ operations overlap in logistics services which involve order capture, warehousing, delivery, supply chain management to NHS Trusts, invoicing, and collection of payments for the relevant products. NHS Logistics functions almost entirely as an in-house provider of logistics to NHS customers, although it does provide certain supplies to other government bodies (e.g. the Ministry of Defence) and a small amount to the private sector. Exel contends that the logistics’ services that it provides to NHS Trusts are complementary to those provided by NHS Logistics since it acts as a provider of certain logistics’ services to only three NHS Trusts in North West London, in relation to very localised activities (e.g. product consolidation and delivery to individual wards) rather than national supply of products on a broader basis.

The parties submitted that it is not appropriate to use a narrower product frame of reference than logistics' services, such as ‘healthcare logistics’ as many of the products concerned are not healthcare specific, such as cleaning materials, food, stationery, bedding, office equipment and clothing. This view of the range of products supplied was not contradicted by third parties contacted during this assessment.

A possible alternative approach (see [Note 1])  to identifying the relevant product scope is to consider supply to particular customer groups (in this case NHS Trusts), which differ in relation to their volume requirements and alternative supply options. However, in considering competition to supply this particular customer group, it is important to note that the consumable products supplied to these customers can be and are also sourced directly from manufacturers or via other wholesale suppliers.

No firm conclusion is necessary in respect of the approaches discussed above as even on the narrowest plausible potential product frame of reference, the supply of logistics’ services to NHS Trust customers, no competition concerns arise.

Geographic market

The parties suggest that there may be some evidence of a gradual move towards a wider European market for general contract logistics. However, previous UK merger decisions (see [Note 2])  have indicated a national geographic scope, since customers display local preferences, and even logistics’ service providers that operate in various countries do so on the basis of a local presence in those countries. The OFT has not received compelling evidence during this assessment to justify changing that view. It is also noted that NHS Logistics only operates in England and Wales.


Market shares

The combined share of supply by contract value of the parties’ operations in logistics’ services in the UK would be 22.5 per cent, with the logistics services of NHS Logistics accounting for a 1.0 per cent increment. In relation to the supply chain for consumable products supplied to NHS customers, NHS Logistics currently accounts for around only 16 per cent of the consumable products supplied, the rest being sourced either directly from manufacturers or from other wholesale sources. As noted above, Exel currently only has limited supply arrangements with NHS Trusts.


No vertical competition issues arise as a result of the transaction.


A number of customers and competitors were contacted during the investigation. No competition concerns were raised which are directly attributable to this transaction.


This merger, once completed, will result in the outsourcing of certain supply chain and procurement functions of the NHS. The overlap between the parties’ operations in respect of the supply of logistics’ services in the UK is minimal. In the view of the OFT, neither this minimal overlap, nor the parties’ low combined share of supply and limited increment raise any competition concerns.

Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.


This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.


  1. Completed acquisition by Southern Syringe Services Limited of Hospital Management and Supplies Limited; 24 January 2005.
  2. Anticipated acquisition by Celesio AG of Healthcare Services Group plc: 29 March 2005. Completed acquisition by Southern Syringe Services Limited of Hospital Management and Supplies Limited; 24 January 2005.
Published 18 July 2006