Anticipated joint venture between Deloitte & Touche LLP, Smith Travel Research, Inc. and the Bench Limited

Affected market: Hotel benchmark reports

No. ME/3464/08

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 22(1) given on 29 February 2008. Full text of decision published on 12 March 2008.

Please note that square brackets indicate text or figures which have been deleted or replaced with a range at the request of the parties and third parties for reasons of commercial confidentiality.

PARTIES

Deloitte & Touche LLP (Deloitte) provides business advisory services in connection with audit, tax, consulting and corporate finance. This joint venture relates to Deloitte's interest in the provision of benchmarking reports for hotels, through its 'HotelBenchmark' division (HotelBenchmark) which provides a range of benchmarking reports to hotels. For the financial year ending 31 May 2007 Deloitte's UK turnover was £1,802 million. HotelBenchmark derived [less than £ 1m] from sales of benchmarking reports in the UK.

Smith Travel Research, Inc. (STR) is also active in the provision of benchmarking reports for hotels, predominantly in the USA. STR's UK turnover for the financial year ending 31 December 2006 was [less than £ 1m]. STR has no place of business in the UK.

The Bench Limited (The Bench) is also active in the provision of benchmarking reports for hotels. 44 per cent of its issued share capital is owned by L&S. For the financial year ending 30 June 2006, The Bench's UK turnover was estimated at [less than £ 1m].

L&S Management LLC (L&S) is a limited liability holding company and has not achieved any turnover for the year ending 31 December 2007.

TRANSACTION

The joint venture (JV) will be owned […] per cent by L&S and […] per cent by Deloitte. The OFT believes that Deloitte will retain, at least, the ability materially to influence the policy of the JV company. It is intended that the JV will acquire the non-North American hotel benchmarking business of STR, the assets and business of L&S (that is, its 44 per cent shareholding in The Bench), and the HotelBenchmark division of Deloitte. In the longer term, it is the intention of the parties that the JV will acquire the remaining 56 per cent of shares in The Bench but, in the absence of anything definitive in this regard, this is not considered as part of this transaction).

A satisfactory submission was received on 7 January 2008 and the 40 working-day administrative deadline therefore expires on 3 March 2008.

JURISDICTION

As a result of this transaction HotelBenchmark, the non-North American hotel benchmarking business of STR and The Bench will cease to be distinct. The turnover test in section 23(1)(b) of the Enterprise Act 2002 (the Act) is not satisfied. The parties overlap in the supply of hotel benchmarking reports. The parties estimate their joint UK share of supply at between [35 and 55] per cent, and so the share of supply test in section 23 of the Act is therefore 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.

THIRD PARTY VIEWS

The concerns raised by four out of seven competitors have been dealt with in the barriers to entry section above. Some competitors said that they expected the JV to decrease prices. The majority of customers who responded were unconcerned. One of the four customers that responded raised concerns on the basis that they were only aware of the parties operating in this sector in the UK. The remaining customers were aware of several suppliers, considered switching to be relatively straightforward and stated that they had at least some ability to negotiate on price.

ASSESSMENT

HotelBenchmark already has the largest share of supply pre-transaction, and the JV would lead to an increase of market share for the new entity to [35-55] per cent, or, according to some competitors, even higher. Yet, these shares may overestimate the JV's market position as they do not take into account those customers who currently use more than one party.

Notwithstanding the JV's relatively significant market share, the OFT considers that the existence of relatively low barriers to entry and expansion, and the existence of countervailing buyer power would off-set the loss of any rivalry between the parties.

In this regard, several suppliers including The Bench have successfully entered this market in the last decade. Further, evidence supplied by the parties and the market investigation revealed that hotels have an important bargaining tool by controlling the necessary data to input into these reports which is provided on a non-exclusive basis, thereby exercising a degree of buyer power. In addition, many customers told the OFT they believe they have buyer power and can switch relatively easily.

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.

DECISION

This merger will therefore not be referred to the Competition Commission under section 33(1) of the Act.

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