The Competition Commission has said that a merger between
software companies Capita and IBS OPENSystems will damage
competition in one of the companies' markets.
The Commission said that Capita's purchase of IBS may allow it
to take advantage of a lack of competition and raise prices. It
said that now that Capita has bought IBS it is one of only two
suppliers in the market for revenues and benefits software, and
that it was unlikely that new makers of competing software would
emerge to change the state of competition.
"In a stable market with little prospect of entry by new
suppliers, our provisional conclusion is that the enlarged Capita
revenue and benefits business will be able to take advantage of the
lack of competition, for example by increasing prices or reducing
levels of service to its customers," said Christopher Clarke,
chairman of the inquiry group into the issue.
The Commission identified two markets in which Capita and IBS
operate. The first is the market for revenues and benefits
software. This software is used by local authorities to calculate
and help collect council tax and business rates, as well as to make
benefits payments.
It was in relation to the market for this kind of software that
the Commission said the deal is unacceptable.
"We consider it likely that the adverse effects of the merger
will have an impact on all customers, whether they are in the
process of tendering for new revenues and benefits software or
already have a contract for such software in place," said
Clarke.
The second market it identified was for social housing software
systems for social housing organisations.
"We do not have similar concerns about the market for social
housing software, where there are considerably more suppliers in
competition with the merged company," said Clarke.
The Commission said that it would conduct a consultation into
ways that Capita could render the merger acceptable. It said Capita
may have to sell all or parts of IBS.
"The Group considers that divestiture of the entire IBS business
to a suitable purchaser would be an effective remedy for the
expected SLC [substantial lessening of competition] as it would
restore the competitive situation absent the merger," said the
Commission.
"The Group is considering whether an alternative divestiture
package involving only the R&B [revenues and benefits software]
business unit of IBS could be effective." it said. "The
[Commission] will normally seek to identify the smallest viable,
stand-alone business that can compete successfully on an ongoing
basis."
The Commission said that there were no behavioural remedies that
would be likely to solve the problem.
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