Affected market: Health and fitness clubs
The OFT’s decision on reference under section 22(1) given on 5 November
2007. Full text of decision published 16 November 2007.
Please note that square brackets indicate figures which have been
deleted or replaced with a range for reasons of commercial
HBOS plc (HBOS) provides banking services in the UK and elsewhere.
Its UK turnover was £[ ] million. HBOS has a 50 per cent shareholding
in De Vere Hotels & Leisure Ltd, a hotel chain which operates health
clubs. Uberior Integrated Ltd (Uberior) is a wholly owned subsidiary
of HBOS and is responsible for making equity investments on behalf of
the Bank of Scotland Integrated Finance.
David Lloyd Leisure Ltd, DLL SA, David Lloyd Leisure Espana I SL and
David Lloyd Leisure Espana II SL (Collectively DLL) operate a chain of
59 health and fitness clubs in the UK as well as one club in each of
Spain, Belgium and Ireland and seven clubs in the Netherlands. Its
worldwide turnover in 2006 was £[ ] million of which £[ ] million
was UK turnover.
Next Generation Clubs Holdings Ltd (NGC) operates 19 clubs in the
UK. Two of these operate under the Amida brand, two under the Harbour
brand, one under the Odyssey brand and the remainder operating as Next
Generation Health Clubs. Its worldwide turnover in 2006 was £[ ]
million, all of which was generated in the UK.
On 3 June 2007 Uberior and London & Regional Investment Holdings Ltd, a privately owned property company entered into a
Subscription and Put Option Agreement whereby Uberior would acquire 55
per cent and L&R 45 per cent of the issued share capital of
Versailles Holdco, which already owned the entire issued share capital
of Versailles Bidco. Versailles Bidco in turn agreed to acquire (1) from
Whitbread plc 100 per cent of the issued share capital of DLL and (2)
from a wholly owned subsidiary of L&R 100 per cent of the issues
share capital of NGC. These agreements were completed on 2 August 2007.
The parties notified the transaction on 7 September 2007. The
administrative deadline expires on 5 November 2007.
As a result of this transaction Uberior and Versailles Holdco have
ceased to be distinct. The UK turnover of Versailles Holdco exceeds £70
million [see note 1]1), so the turnover test in section 23(1)(b) of the
Enterprise Act 2002 (the Act) is satisfied. The OFT therefore believes
that it is or may be the case that a relevant
merger situation has been created.
FRAME OF REFERENCE
The parties overlap in the supply of health and fitness club services in
The supply of health and fitness club services has previously been
examined by both the OFT and the European Commission (EC). In
Bridgepoint Capital/Permira/Holmes Place [see note 2] the EC did not
reach a definitive conclusion on the precise product market. However,
it did find that a product market comprising all sports and leisure centres,
including publicly and privately owned clubs was too broad, identifying
some important differences between publicly and privately owned clubs
in terms of the facilities and charging structures offered. It was nonetheless
recognised that in some instances there appears to be a degree of
In Virgin Active/Holmes Place, the OFT took a cautious approach and
considered the appropriate product frame to be private health and
leisure clubs which offer a comprehensive range of facilities and
services. In particular, third party responses in that case indicated
that in order to be a strong competitor, a private club must provide a
combination of most or all of the following facilities: a gym; exercise
class; swimming pool; sauna; café/bar; crèche; and beauty/spa
One third party suggested that a wider product market may be
appropriate, stating that the level of competition in the industry has
increased in the last five years partly due to significant investment by
local authorities in the provision of public facilities. Another third
party considered that the parties’ activities overlapped on a narrower
basis, specifically premium health and fitness centres offering racquet
sports facilities. On the basis of the information available, the OFT
considers that this product frame is too narrow as there would be a
significant proportion of customers who do not view racquet sports as an
essential part of the health and fitness club offering. In particular,
the OFT has found no evidence to show that following a price increase
these customers would not be willing to switch to other health and
fitness clubs rendering such price increases unprofitable. On this basis
we consider that the product frame is wider than premium health and
fitness clubs offering racquet sports. Furthermore, for those customers
specifically looking to purchase racquet sport services, they will be
able to substitute between both health and fitness clubs with racquet
sports and other separate racquet sports providers/venues.
In this case, it was not necessary to reach a conclusion on whether
public facilities should be considered as part of the appropriate frame
of reference as no competition concerns arise on even a narrow product
frame, specifically, health and leisure clubs services provided by
chains and hotels.
Competition within the health and fitness industry would appear to
primarily occur at the local level. The parties contended that there is
an element of national competition between health and leisure clubs.
However, this appears to be limited to building a brand and/or identity
to help individual clubs compete at a local level.
All of the competitors who responded agreed that competition is
conducted at the local level. This view is further supported by external
customer research, including:
In 2005 a study by the IHRSA [see note 3] found that 70 per cent
of members of health and fitness clubs stated location was the
key criteria in determining which club they became a member of.
* A recent survey conducted by the Fitness Industry Association
[see note 4] found that on average members travel 2.6 miles to get to
the gym with 80 per cent travelling by car.
* The Health of the Nation Report conducted in 2006 by Deloitte used 20
minute travel times as the relevant catchment for gyms.
In Bridgepoint Capital/Permira/Holmes Place, the EC did not conclude
on geographic scope as the merger did not give rise to competition
concerns on any definition. However, in conducting the competitive
assessment, they calculated share of clubs within a 1.5km radius
(equivalent to 15 minutes walking time) of each of the merging parties’
In the Virgin Active/Holmes Place case, third parties broadly
supported the view that customers were willing to travel 15-20 minutes.
However, it was also suggested that within London a higher proportion of
members walked to the gym from home or work, whereas outside London, the
majority of members travel by car. As a result, a cautious approach was
taken and the effects of the transaction were considered based on both
15 and 20 minute walk times (1.5km and 2km radii), and 15 and 20 minute
The OFT found no evidence during its investigation to suggest a
departure from the approach taken in previous cases. Therefore, the OFT
has undertaken its competitive assessment on both a 15 and 20 minute
drive time and a 15 and 20 minute walk time (using a 1.5km and 2km radii
as a proxy).
At a national level, the parties will have a combined share of all
private health and leisure clubs of [less than five] per cent
(increment [less than one] per cent) in the UK. The sector appears to
be highly fragmented with no competitor holding a share of supply
greater than 5 per cent (by number of clubs). Even on a narrow product
market consisting of all chains and hotels, but excluding independent
gyms and public leisure centres the parties combined share of clubs is
only [10-15] per cent. Given this, and the large number of competitors
present, no concerns are considered to arise at the national level.
The parties identified nine local areas which gave rise to an overlap.
The OFT examined each of these areas and found that, even when applying
a narrow competitor set of only private health and leisure clubs
operated by chains and hotels, at least four competitors would remain
post-merger [see note 5]. Furthermore, in each local area there are likely
to be additional independent health and leisure clubs offering comparable
services. On this basis, no competition concerns are considered to arise at
the local level given the number of remaining competitors capable of
constraining the parties’ behaviour post-merger.
THIRD PARTY VIEWS
The vast majority of third parties contacted during the OFT's
investigation did not raise competition concerns. Only one third party
raised concerns in relation to the premium health and fitness centres
offering racquet sports. However, they provided no evidence to support
these concerns and, as discussed above, the OFT is satisfied that
sufficient competitive constraints remain post-merger.
The parties overlap in the supply of health and leisure clubs services
in the UK. At a national level, even on a narrow product market
consisting of all chains and hotels, but excluding independent gyms and
public leisure centres the parties combined share of clubs is only
[10-15] per cent. Furthermore, a number of other independent and chain
competitors are present in the sector.
At the local level, for each of the areas of overlap, at least four
other competing chain operators and/or hotel operators, along with
various other independent clubs will continue to constrain the parties
Consequently, the OFT does not believe that it is or may be the case
that the merger has resulted or may be expected to result in a
substantial lessening of competition within a market or markets in the
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.
- The UK turnover of Versailles Holdco was approximately £[ ]
million, £[ ] million of which derived from DLL and £[ ] million
- Case No COMP/M.3169 Bridgepoint/Permira/Holmes Place (2003)
- The IHRSA European Market Report 2006: The size and scope of the
- State of the Fitness Industry Report FIA The Leisure Database
Company, June 2006
- One local area was identified as giving rise to a reduction in the
number of competing clubs from six to five and two other local areas
gave rise to a reduction from seven to six. For all of the remaining
local areas there were in excess of seven other competitors present.