Affected market: Software services to local authorities
The OFT's decision on reference under section 33(1) given on 27 October 2008. Full text of decision published 3 November 2008.
Please note that square brackets indicate figures or text which have been deleted or replaced at the request of the parties for reasons of commercial confidentiality.
Northgate Information Solutions UK Limited** (Northgate) is a private limited company active in the provision of software, outsourcing and information technology (IT) services to the human resources, local government, education and public safety sectors. It is active primarily in the UK, but also in other countries including the United States, Ireland, Australia, New Zealand, China and Singapore. Northgate's UK turnover for the year ended 30 April 2007 was around £342 million.
Anite Public Sector Holdings Limited** (Anite) is a wholly owned subsidiary of Anite plc which is listed on the London Stock Exchange and provides a comprehensive range of business-critical IT solutions to public and private sector organisations. The vast majority of Anite's sales are achieved in the UK. Anite's turnover for the year ended 30 April 2008 was around £62 million.
By virtue of a share purchase agreement signed on 31 July 2008, Northgate has agreed to acquire 100 per cent of the issued share capital of Anite from Anite Systems Holdings Limited, a wholly owned subsidiary of Anite plc, for a cash consideration of £54,333,000 (subject to any adjustment required to reflect the net assets and working capital of Anite Public Sector Holdings Limited and its subsidiaries). The parties notified their transaction to the OFT by way of an informal submission on 1 August 2008. The administrative deadline expired on 29 September 2008. The parties submit that the transaction will enable Northgate to expand its product portfolio and strengthen its offering in a number of non overlap areas such as social care and document management applications.
As a result of this transaction Northgate and Anite will cease to be distinct. The parties overlap in the supply of software and related services to Local Authorities for revenues and benefits applications in the UK, where their combined share of supply is above 25 per cent and therefore the share of supply test in section 23 of the Enterprise Act 2002 ('the Act') is met. 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.
Both parties are active in the provision of IT solutions to Local Authorities and housing organisations. The OFT considers the impact of the transaction on the basis of the narrowest frames of reference, namely separately on (i) the provision of software and related services to Local authorities for R&B applications, (ii) the provision of software and related services to Local Authorities and housing organisations for SH applications and (iii) the provision of secure information solution to the criminal justice sector (CJ).
Considering unilateral effects in relation to the provision of R&B applications, bidding data indicate that Anite does not operate as a key competitor in the market. Having assessed the competitive interaction existing between Northgate and Anite, and taking into account Anite's position in the market going forward, the OFT believes that Anite does not place a significant competitive constraint on Northgate and is unlikely to do so in the future. Accordingly, no realistic prospect of substantial lessening of competition arises as a result of unilateral effect concerns in the R&B market.
The OFT also concludes that the contemplated merger will not increase the likelihood of coordinated behaviour on the R&B market on the basis that Anite's impact (given it's failure to win new business) on any potential coordinated behaviour in the rest of the market is likely to be extremely limited.
In relation to SH applications, the OFT finds that the competitive constraint placed by each of the parties on the other is weak relative to the number and the strength of remaining players in the market. In addition, the OFT is satisfied that sufficient alternative players to the merged entity will remain in the market in order to ensure that any tendering process stays competitive post-merger. Accordingly, no unilateral effect concerns arise as a result of the transaction in relation to the supply of SH applications. The OFT also concludes that no coordinated effect concern arises in relation to SH applications given a large number of players in the market, and an increased asymmetry in competitors' market shares as a result of the merger.
Finally the OFT finds that no concerns arise in relation to the supply of secure information solutions to CJ. The OFT takes the view that the parties are not close competitors in relation to the supply of CJ and that a sufficient number of players will remain post-merger. The substantial degree of product and supplier differentiation as well as the relatively large number of potential suppliers in this market leads to dismissing coordinated effect concerns potentially arising as a result of the merger.
This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.