Fenland’s anticipated acquisition of Fishers Cleanroom could face an in-depth phase 2 investigation.
Fenland Laundries Limited (Fenland) and Fishers Services Limited’s cleanroom laundry business (Fishers Cleanroom) both provide cleanroom laundry services to customers who operate within sterile environments, including the pharmaceutical manufacturing industry, NHS pharmacies and manufacturers of semi-conductors, micro-electronics, medical devices and precision engineering.
Fenland currently operates under a joint venture agreement with Berendsen Cleanroom Services Limited (Berendsen) under which Fenland serves customers in an area north of a line broadly between London and Anglesey (the North) and Berendsen serves customers located south of that line. Both companies provide services under the Micronclean trademark. If Fenland acquires Fishers Cleanroom, it will terminate the joint venture so that Fenland and Berendsen will become independent competitors.
In its phase 1 investigation, the CMA (Competition and Markets Authority) has looked in particular at the effect the merger might have on the supply of services to the higher cleanroom laundry standard (full cleanroom). Fishers Cleanroom, whose laundry is based in Livingston, Scotland, is currently Fenland’s closest competitor in the North. Customers, who consider Fenland and Berendsen as one supplier as they currently both operate as Micronclean, have told the CMA that there are no alternative suppliers. The CMA therefore found that the acquisition raises competition concerns.
The CMA also considered whether, following termination of the joint venture, a newly independent Berendsen would be likely to successfully expand its services into the North. However, although the CMA found that Berendsen will have the ability to expand, at this stage there was insufficient evidence that Berendsen has the incentive and intention to do so in a timely way to prevent these competition concerns from arising.
The CMA has therefore found that the transaction gives rise to a realistic prospect of a substantial lessening of competition in the supply of full cleanroom laundry services in Great Britain. This could lead to price rises and/or a reduction in service quality provided to customers, in particular pharmaceutical manufacturers and NHS pharmacies.
The CMA has found that for the lower standard of cleanroom laundry services there are sufficient alternative suppliers to prevent competition concerns arising.
The transaction will therefore be referred for an in-depth phase 2 investigation unless the companies offer acceptable undertakings to address the CMA’s competition concerns in a clear-cut manner.
Andrea Coscelli, CMA Executive Director of Markets & Mergers and decision maker in this case, said:
In some parts of Great Britain, this transaction will bring together the only 2 current suppliers providing the high classification laundry services required by pharmaceutical manufacturers, NHS pharmacies and others.
With Fenland no longer facing competition from its closest competitor and with significant uncertainty as to whether Berendsen will in fact play a similar role in the North within a reasonable timeframe, such customers could face higher prices and reductions in quality and service as a result.
We therefore plan to refer the merger for an in-depth investigation unless Fenland offers acceptable undertakings to address our concerns.
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.
- The Reference Test – 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 the Act is not exercised whilst the CMA is considering whether to accept undertakings (if offered) in lieu of a reference. Fenland has until 23 December 2015 to offer undertakings to the CMA that might be accepted by the CMA. If no undertakings are offered or accepted, then the CMA will 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 business. The membership of an inquiry group usually reflects a mix of expertise and experience (including industry experience).
- 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.