Monday, 1 December 2008

OFT refers Capita/IBS merger to the Competition Commission

As I predicted last month (see here) the OFT has referred the completed acquisition of IBS OPENSystems by Capita to the Competition Commission. Quoting from the press release (we’re still awaiting the full text) from the OFT:

The OFT has significant competition concerns in relation to the supply of revenue and benefits software services to UK local authorities. Bidding data, supported by strong customer concerns, indicates that the merger combines two of only three successful competitors supplying such software, and that with the removal of IBS as an important rival, Capita would be likely to find it profitable to offer its own and/or IBS' products and services at less favourable terms in future bidding opportunities.

Although Northgate Information Solutions (Northgate) will remain a substantial rival to Capita, the OFT was not persuaded that two successful bidders competing head to head would give customers the same value for money as three, and new entry to restore local authorities' supply options is unlikely.

Based on the reduction in competition, I can’t see that this decision can be questioned.

However, there is a need to review (and I’m sure that the Competition Commission will look at), the specific nature of the UK Revenues & Benefits market – a relatively small market in national, let alone global, terms and one driven by Government policy – something that can impose severe constraints on suppliers’ abilities to be successful. Indeed, should Central Government decide to abolish Housing Benefits, and/or move to local income tax, then suppliers could see their market disappear overnight – not something that is likely to encourage multiple suppliers to invest their own funds in developing/enhancing their products.

One could argue that, given the size and nature of the R&B market, having two (rather than 3 or more) suppliers makes it easier and, potentially more cost-effective, for Government to make substantial changes to the associated legislation. (One supplier might be even better – but unlikely to happen in the current environment).

I’ll aim to return to this topic later, once the full OFT text has been published.

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