Wednesday, 17 September 2008

Capita's acquistion of IBS is referred

Capita’s acquisition of IBS has been referred to the Office of Fair Trading (OFT). Capita issued the following RNS yesterday:

The Office of Fair Trading is considering whether arrangements are in progress or incontemplation which, if carried into effect, will result in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002. Should it be found to be a relevant merger situation, the OFT will further consider whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services that warrants reference to the Competition Commission for investigation and report.

Personally, I'm not surprised by this. I have little doubt that it has been prompted by Northgate's proposed acquisition of Anite's Public Sector Division, which also includes Revenues & Benefits and Housing systems. I suspect that the Revenues & Benefits market is the area OFT is considering, as if both acquisitions were to go through, effectively there will be only two suppliers, Northgate and Capita (I don't count anyone else as having credible solutions).

My opinion is that Anite's Pericles product is barely competitive in this market, so I consider the likelihood of a successful referral of the Northgate/Anite acquistion to the Competition Commission as minimal (although if OFT does refer it to the CC it may result in Northgate walking away any rate). However, IBS offeres a very credible solution, and if the OFT wishes to see at least three suppliers for R&B then the Capita/IBS acquisition could be over-turned. (I consider that Pericles, even combined with Civica's ageing R&B user base, is unlikely to ever be a major credible competitor).

My understanding is that the 40-working-days clock is ticking down on the Northgate/Anite investigation, and a decision is to be expected around mid-October at the latest. But the Capita/IBS investigation will take longer.

What happens if the Competition Commission rules against the Capita/IBS acquisition? I see it very difficult to do anything other than undo the acquisition (making Capita divest just the Revenue & Benefits software would be difficult as the IBS products share technology and support staff), in which case, whilst IBS could continue as an independent supplier, I believe that they would be better off as part of a larger company. Northgate certainly wouldn't be allowed to acquire IBS, so I guess that Civica would be in pole position - if a price could be agreed. Or could we see someone else with aspirations to be a major supplier to the UK Local Authority market enter the fray?

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