This follows concerns that it may lead to higher gym membership prices or a reduction in quality and choice for customers.
This is the first time the Competition and Markets Authority (CMA) has referred a merger for in-depth (or Phase 2) investigation. As under the previous system (when the Office of Fair Trading (OFT) would refer mergers for investigation to the Competition Commission (CC)) a decision on the merger will be made by a group of independent panel members supported by a case team of CMA staff.
Pure Gym and The Gym are the leading operators of budget gyms nationwide, with over 100 gyms between them and achieving combined revenues of more than £50 million. The budget gyms sector is a fast-growing part of the UK fitness market and both Pure Gym and The Gym have significant expansion plans.
The CMA examined the effect on competition in the provision of gyms at both a national and local level. It found that the merging firms operate similar business models with 24-hour opening, low prices, and a no-contract offering and considers that they compete closely in most local areas where they overlap. After careful consideration, the CMA found concerns that the merger may substantially lessen competition at both a national level and in 14 local areas, which may result in higher prices or a reduction in the service offered by the merging gyms.
The CMA is also concerned that the merger might affect potential competition as without it the parties’ expansion plans could have led to them competing in additional local areas. It considers that further analysis is required on this matter.
The CMA has examined the entry and expansion plans of other budget gym operators but has not at this stage found sufficient evidence that this would offset the loss of rivalry between the parties.
The parties offered undertakings to resolve local concerns, but the CMA was not confident that these undertakings would resolve in a clear-cut manner the competition concerns it has identified at this stage of its investigation.
Andrea Coscelli, Executive Director of Markets and Mergers and decision maker in this case, said:
This deal brings together the 2 main national operators in the budget gyms sector. Budget gyms provide a low and affordable gym offer to a range of customers across cities and towns in the UK. The market is growing and while other operators are seeking to establish new budget gyms and grow their market share, Pure Gym and The Gym are the largest budget gyms by some distance with significant expansion plans of their own.
We have found evidence which indicates that the merger could raise competition concerns both nationally and in a number of local areas and could impact the parties’ expansion plans leading to higher prices, reduced service or less amenity for local budget gym users across the UK.
Given the concerns about the potential effect on customers identified by our Phase 1 investigation and the need to look closely at this developing sector, we are now opening a detailed investigation into this merger.
The deadline for the final decision on the merger is 10 December 2014.
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. From 1 April 2014 it took over the functions of the CC and the competition and certain consumer functions of the OFT, as amended by the Enterprise and Regulatory Reform Act 2013. For more information see the CMA homepage. For CMA updates follow us on Twitter @CMAgovuk, Flickr and LinkedIn.
- The merger will consist of bringing Pure Gym Limited and The Gym Limited together in a newly formed entity under the common control of their current respective shareholders, CCMP Capital Advisors LLC and Phoenix Equity Partners. The merger has not yet completed.
- The Reference Test – under the Enterprise Act 2002 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 Enterprise Act 2002 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 UK (or a substantial part thereof) is created or enhanced (‘the share of supply test’).
- 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.
- An Inquiry Group is appointed for each inquiry, supported by a case team of CMA staff. Under the Enterprise and Regulatory Reform Act 2013, the Chair of the CMA is responsible for identifying and appointing the Inquiry Group that will conduct a particular inquiry and for selecting one of them to act as chair of the Inquiry Group (the Inquiry Group Chair). In practice, the Chair of the CMA will delegate these responsibilities to the CMA Panel Chair.
- The CMA’s panel members come from a variety of backgrounds, including economics, law, accountancy and/or business; the membership of an Inquiry Group usually reflects a mix of expertise and experience (including industry experience).
- The Inquiry Group may extend the 24-week period within which it is required to publish its report by no more than 8 weeks if it considers that there are special reasons why the report cannot be published within that period.
- The text of this decision will be placed on the case page as soon as is reasonably practicable.
- Enquiries should be directed to Rory Taylor or by ringing 020 3738 6798.