Software acquisition anti-competitive, says regulator as partial sale is forced on Capita

The Competition Commission (CC) investigated Capita's purchase of IBS OPENSystems. Each company had divisions which made and sold software for revenues and benefits (R&B) systems, which are used by local authorities to collect council tax and distribute benefits. They also both make software for the operators of social housing.

The CC has ruled that the deal would diminish competition in the market for R&B software to an unacceptable degree, and that Capita must immediately sell the parts of IBS OPENSystems that deal in revenues and benefits software.

"This merger combines two closely competing suppliers of R&B software to local authorities, leaving only one other supplier actively competing for business," said Christopher Clarke, who was the chairman of the CC inquiry committee. "In a stable market with little prospect of entry by new suppliers, our conclusion is that the enlarged Capita R&B 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."

"We consider that the adverse effects of the merger will have an impact on all customers, whether they are in the process of tendering for new R&B software or already have a contract for such software in place," said Clarke. "We believe that the only way in which we can restore competition for the benefit of customers is by requiring Capita to sell off at least the R&B business of IBS."

However, the CC said that it did not have the same concerns about software for the social housing market. It said that though the two companies competed in that area as well, enough other companies also provided such software that the deal did not have the same effect on competition.

Capita attempted to convince the CC committee that it could address its concerns by maintaining both sets of products and investing both in Capita's and IBS OPENSystems' R&B software. It also said it would submit to external monitoring and put price controls in place.

The CC rejected those as solutions to the core problem, though. "The remedies proposed whereby Capita would, for example, maintain a choice of the IBS or Capita software systems for existing and new customers, continue to invest in both software systems, or waive any fixed term in any existing contract, would not restore rivalry in the R&B market and so would not address the [problem]," the committee's report said.

The CC committee said that both a full sale of the whole IBS OPENSystems business or a sale just of its R&B component would solve the competition problems. It said that it would endorse the partial sale as a "less intrusive" option.

It said, though, that it would step in to force a full separation if the R&B business was not sold quickly.

"Should a successful divestiture of the IBS R&B division not be achieved by Capita within a reasonable period, we will review whether we need to widen the scope of the divestiture package to a full divestiture of the IBS business," the committee's report said.