Completed acquisition by Synergy Healthcare plc of Vernon-Carus Limited

Affected market: Supply of decontamination services

No. ME/3448/07

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 33(1) given on 19 March 2008. Full text of decision published 29 April 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.

PARTIES

Synergy Healthcare plc (Synergy) is a listed company operating throughout Europe, South Africa, Thailand and Malaysia. It offers a range of support services and medical products to healthcare providers. Its activities are grouped in to three business areas: Surgical Support Services (including the provision of decontamination services for surgical instruments); Patient Care (providing a range of support services to acute, primary care and nursing homes, including linen management continence care and wound care); and Isotron Sterilisation Services (providing contract sterilisation services for medical device manufacturers and industrial companies).

Vernon-Carus Limited (VC) is a manufacturer and distributor of healthcare products, including surgical products, medical packaging, procedure trays, infection control, sharps bins and wound care. It is also active in the decontamination and sterilisation of surgical instruments. VC's UK turnover for the year ended 1 April 2007 was £29m. 

TRANSACTION

Synergy made a recommended offer for the entire issued share capital of VC. The offer became unconditional as to acceptances on 13 November and the deal was completed on 19 November 2007. The total consideration paid was £24.4m including the assumption of £8.1m in debt.

The OFT examined this merger as a result of an unsolicited complaint. The administrative deadline for a decision was 11 March 2008. The extended statutory deadline expires on 28 March 2008.

JURISDICTION

As a result of this transaction Synergy and VC have ceased to be distinct. The parties overlap in the supply of commercial surgical instrument decontamination services and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. The parties' combined share of supply by value of commercial decontamination services in the UK is [30-40 per cent], an increment of [less than one per cent]. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

THIRD PARTY VIEWS

The OFT's enquiry into this merger was prompted by a complaint. Serious concerns about the implications of the reduction in competition for the remaining stages of the NDP were expressed as well as for the re-tendering of contracts once current contract terms expire or are terminated.

Views from NDP customers were mixed, and were largely related to commercial issues. Smaller non NDP customers described a range of experiences with respect to pre-merger competition. Those requiring outsourced management of their on-site sterile services department did not identify VC as an active competitor. While substantive concerns about removal of local choice in off site provision were raised by a customer in the North West, these concerns were raised before [    ].

Competitors' views were mixed. Concerns were expressed about the future ability to compete in some areas of the UK where Synergy would have scale and transport cost advantages. It was also suggested that Synergy will be able to exploit market power in the North West as a consequence of the merger, and cross-subsidise its tendering activities elsewhere. One third party competitor did not anticipate that the merger would make much difference to the market.

All of these third party concerns have been considered and addressed above.

ASSESSMENT

The parties overlap in the supply of decontamination services in the UK.

The merger results in the loss of an independent competing bidder for ongoing and future NDP tenders, and for other non-NDP outsourced contracts, specifically in the North West of England.

Given VC's perceived status as a weaker bidder and the buyer power that the collaborations have, [  ], the OFT considers that there is not a realistic prospect that the merger will give rise to a substantial lessening of competition in relation to the national NDP. VC had been relatively unsuccessful in converting tender bids into short listings and contract awards. The third party concerns about the loss of potential competition appear in large part driven by a perception that the NDP has not retained as many actively participating tender bidders as had been anticipated or hoped for at the outset, which is not a merger effect.

VC's non-NDP activity was only a recent, albeit potentially successful, development. The merger brings together the two competitors currently best-placed (geographically) to serve non-NDP demand in the North West. However, [    ] - [  ] - and the expansion of the activities of SterilPlus will, the OFT believes, ensure that competition for non-NDP contracts in the North West will continue to be effective.

Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or 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 22(1) of the Act.

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