November 18, 2015 is the deadline for the decision on phase 1 of the Competition and Markets Authority (CMA) investigation regarding the acquisition of Avanta Serviced Office Group plc by Regus Group Limited.
Back in April, we reported that Regus had acquired Avanta, the second largest office space provider in the UK; and in May 14 the CMA filed its initial enforcement order to investigate the deal.
According to the enforcement order, the CMA is investigating whether Regus’ acquisition of Avanta “has resulted or may be expected to result in a substantial lessening of competition in any market or markets in the United Kingdom (UK).”
Jonathan Price, from Business Centre Capital Co Ltd, weighs in on the situation stating that:
“It is really difficult to say whether the merger will be permitted or not because it depends whether the Competition & Markets Authority considers serviced offices to be a separate market from other types of office space. The fact that the investigation has gone into its second stage tends to suggest that the CMA does accept serviced offices as being a different market to conventional office space.”
If, indeed, the serviced office market is recognized as a separate market then the ramifications will go well beyond the current investigation at hand.
“The test is whether the merger will lead to a substantial lessening of competition or not,” added Jonathan.
Regus’ 2015 Interim Results Presentation reports that the company had, up to June 2015, invested £120m and added 231 new locations to its listings. The report also states that they expect to invest a net amount of c£230m and to have added c600 locations by the close of the 2015 year.
Their third quarter statement, released yesterday, reports that “during the third quarter we added 110 new locations to our global network with associated net growth capital investment of £55.3m.”
The statement also confirms their efforts to growth, as they plan to ““continu[e] with the disciplined investment in new locations – both organic and through acquisitions.” Regus’ plans for expansion and growth are not limited to the UK region. We’ve seen them acquire operators in the US and other European countries as well. Among these there’s Businessuites, Abby Executive Suites, Spaces.
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As for the investigation at hand and in terms of Regus’ acquisitions, Price comments that, “Bearing in mind the time that has elapsed, it is possible that Regus is trying to offer some concessions to gain approval for the takeover. These concessions would normally involve splitting off some of the business to be acquired or selling some of its own business, to reduce overlap in particular areas.”
Which would mean that their future plans for expansion and growth through acquisitions are likely to be affected by the CMA’s decision. As it’s possible they’ll have to switch their growth dynamic to one of give-and-take (such as the case of Evans Easyspace leaving Regus before they could move forward with Avanta).
Regus is the biggest fish within our industry, and it appears to be that they plan to keep it this way. However, the CMA’s investigation does prompt the question: how big is too big?
Stay tuned, more to come.