The UK Competition and Markets Authority (CMA) is further investigating Regus’ acquisition of Avanta as a result of “concerns” raised by customers, competitors and brokers.
The merger will now be referred for a phase 2 investigation “unless Regus offers acceptable undertakings to address the competition concerns arising in these local areas in a clear-cut manner,” the CMA states.
Regus has declined to comment at this stage, referring instead to the CMA for further updates as they become available. The company is understood to be in constructive dialogue with the CMA with any effects of the investigation unlikely to hamper Regus’ growth plans.
While the eventual outcome remains to be seen, Simeon Howard, founder of Your City Office Ltd, believes that the CMA’s decision is generally a “good result for the industry.”
Referring to the initial announcement of Regus’ acquisition of Avanta, he said: “I have no affiliation with one brand or the other, but I felt that was one step too far. I agree with the CMA’s decision.”
He expressed concerns over the lack of competition and that smaller and boutique operators may struggle to survive against Regus’ size and ability to reduce prices.
He said: “One thing that’s been made clear is that consumers want more choice in operators, as well as locations.”
“Those consumers who complained are most likely previous Regus clients or those who have come into contact with Regus but chose Avanta instead, and now feel dissatisfied with the manner in which their workspace is changing hands.
“It’s not in the spirit of good, open, fair business. The purpose of the CMA is to ensure the market remains competitive, that pricing remains competitive. If Regus is allowed to continue on its path of expansion, their size will make it impossible for other operators to compete on price. There is also no incentive to raise their standards.”
He added: “If nothing else, it will cause them to think twice about future acquisitions.”
Where next?
Jonathan Price of Business Centre Capital Co Ltd added his thoughts on the options that Regus may be considering.
“To try and mitigate the CMA’s concerns, Regus could offer to divest to third parties some of its own branded centres in the key areas, or it could sell the Avanta centres in those areas to third parties. Or it could abandon the acquisition and sell Avanta off.”
He added: “There isn’t really any other way of dealing with this problem. Either way it’s not good news, because it reduces the value of what Regus is buying in some of the most important areas of the London market, which is itself by far the most important part of the UK national market.”
As for Regus’ global expansion, will this ruling have ramifications beyond UK borders?
Simeon believes it will have some impact on the wider industry, with the possibility that further acquisitions “will be more closely scrutinised as a by-product of the CMA’s decision.”
However, this comes at a time when the company has announced its intention to launch over 100 new centres in Poland alone, while Regus’ 2015 Interim Results report, released in August 2015, states that the company added 231 new locations in H1 with the expectation of 600 new locations by the close of the year.
It is also worth noting that there is a distinct lack of market comment on the CMA’s decision, suggesting that the ruling is not yet having significant consequences beyond the industry.
However, a red flag has been waved and a course of action is now required. The question is: which route will Regus take?
