Affected market: Marketing and communication services
The OFT’s decision on reference under section 33 given on 26 May 2005. Full text of decision published 3 June 2005.
Huntsworth plc (Huntsworth) is a public relations-focused marketing services group with 46 offices in 11 countries worldwide. In the year ending 31 December 2003 Huntsworth had a UK turnover of £23.3 million.
Incepta Group plc (Incepta) is an international marketing and communications group with 79 offices across 20 countries. In the year ending 29 February 2004 Incepta had a UK turnover of £133.9 million.
This transaction is being implemented by means of a recommended share for share offer for 100 per cent of the share capital in Incepta. The parties notified the OFT on 15 April 2005. The statutory deadline expires on 27 May 2005.
As a result of this transaction, Huntsworth and Incepta will cease to be distinct. The UK turnover of Incepta exceeds £70 million, so the turnover test in section 23(1)(b) of the Enterprise Act 2002 is 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.
The parties overlap in the supply of marketing communications services, including segments involving information and consultancy; public relations; identity and design; healthcare and specialist communication services.
The parties, and some third parties, endorse the view taken by the European Commission in its recent decisions (see [note 1]) that all segments of marketing communications services should be categorized within the same product scope. However, many customers saw the purpose of each campaign as dictating the choice of segment or segments in combination. This suggests little demand side substitutability between segments, and although third parties generally supported Huntsworth’s belief that there was supply side substitutability between segments, there was no evidence as to ease and speed as to which switching could occur. Within a segment such as public relations, the parties argued that there was supply side substitutability between different customer sub-segments (e.g. financial, corporate, consumer, public affairs, integrated healthcare and technology public relations sectors) as switching was easy and swift. As the outcome of the competition assessment is the same whichever product frame of reference is used, the merger is examined with regard to (i) marketing communication services as a whole and; (ii) specific marketing communication service segments where the parties overlap.
The supply of both marketing communication services and specific marketing communication service segments would appear to be at least national, as concluded by the parties, third parties and in previous European Commission decisions. This is due to such factors as language differences, differing media conditions and pricing differences across various countries, as well as different national reporting requirements. However, some third parties pointed out that customers may require suppliers who operate at a European or international level, and not all suppliers active on a national level will be able to provide services on an international scale. A cautious view has therefore been taken and both national and international frames of reference are considered.
In marketing communication services, the merged entity will face five major international competitors post-merger: WPP, Omnicom, Interpublic, Publicis and Havas (see [note 2]). On a narrower, national frame of reference, the parties estimated their combined share at less than 10 per cent. Third parties have raised no concerns and in the main viewed this industry as highly fragmented and dynamic, pointing particularly to the presence of numerous national suppliers post merger.
In considering the narrower service segments comprising marketing communication services, there is only a minimal overlap in information and consultancy, identity and design, healthcare and specialist communication services, and public relations. In the case of information and consultancy, Huntsworth is active only in healthcare research, where Incepta has no presence. In the remaining segments the parties estimate their combined share as no more than 10 per cent on a national or international basis. The highest share of supply figures are in public relations, where post transaction there will remain the five major competitors identified above.
Third parties raised no concerns in relation to these segments. Many saw the public relations segment in particular as fragmented, dynamic and allowing customers to switch easily, with the parties aiming at different types of customer.
Barriers to entry and expansion
Huntsworth submits that barriers to entry are low and suppliers are able to expand their businesses quickly and easily either through the recruitment of new personnel or the development of the business into new fields of activities. Although there has been a general consolidation of the industry, third parties provided evidence of numerous small start-up companies entering or exiting this sector over the last five years, many as result of the mobile work force moving in and out of the established agencies.
There were no vertical issues raised by this transaction.
As to portfolio concerns, there is no basis for concluding that the merged entity would have the ability or incentive to engage in tying or anticompetitive bundling strategies. There is no evidence of ‘must have’ customer preferences; the merged entity does not appear to enjoy market power; numerous suppliers are active throughout all segments of this industry, and no third party raised this issue as a concern.
THIRD PARTY VIEWS
Third parties had no concerns about this transaction.
The parties overlap on a national and international basis in the supply of marketing communication services and various service segments within it, in particular, public relations services. The OFT has no reason to doubt the low share of supply figures provided by the parties (no more than 10 per cent for all frames of reference) given that third parties raised no concerns and generally characterised the industry as highly fragmented and dynamic, with numerous competitors of varying sizes and specialities remaining.
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.
- Eurocom/RSCG (case IV/M. 147); and WPP/Young & Rubicam (case COMP/M.2000).
- This view is supported by evidence derived from Huntsworth’s internal documents, which cite these as significant competitors. Industry journals state that these 5 own 15 of the largest PR agencies in the UK.