It is first time the Competition and Markets Authority (CMA) has referred a merger for in-depth (or Phase 2) investigation. As under the previous system (when the Office of Fair Trading (OFT) would refer mergers for investigation to the Competition Commission (CC)) a decision on the merger will be made by a group of independent panel members supported by a case team of CMA staff.

Pure Gym and The Gym are the leading operators of budget gyms in the United Kingdom, with over 100 gyms between them and achieving combined revenues of more than GBP 50 million. The budget gyms sector is a fast-growing part of the UK fitness market and both Pure Gym and The Gym have significant expansion plans.

The CMA examined the effect on competition in the provision of gyms at both a national and local level. It found that the merging firms operate similar business models with 24-hour opening, low prices, and a no-contract offering and considers that they compete closely in most local areas where they overlap. After careful consideration, the CMA found concerns that the merger may substantially lessen competition at both a national level and in 14 local areas, which may result in higher prices or a reduction in the service offered by the merging gyms. The CMA is also concerned that the merger might affect potential competition as without it the parties’ expansion plans could have led to them competing in additional local areas. It considers that further analysis is required on this matter.

The authority has examined the entry and expansion plans of other budget gym operators but has not at this stage found sufficient evidence that this would offset the loss of rivalry between the parties.

The parties offered undertakings to resolve local concerns, but the CMA was not confident that these undertakings would resolve in a clear-cut manner the competition concerns it has identified at this stage of its investigation.

Andrea Coscelli, Executive Director of Markets and Mergers and decision maker in this case, said:

“This deal brings together the two main national operators in the budget gyms sector. Budget gyms provide a low and affordable gym offer to a range of customers across cities and towns in the UK. The market is growing and while other operators are seeking to establish new budget gyms and grow their market share, Pure Gym and The Gym are the largest budget gyms by some distance with significant expansion plans of their own.

We have found evidence which indicates that the merger could raise competition concerns both nationally and in a number of local areas and could impact the parties’ expansion plans leading to higher prices, reduced service or less amenity for local budget gym users across the UK.

Given the concerns about the potential effect on customers identified by our Phase 1 investigation and the need to look closely at this developing sector, we are now opening a detailed investigation into this merger.”

The deadline for the final decision on the merger is 10 December 2014.

Source: Competition and Markets Authority