Completed acquisition by Capita Financial Group Limited of the Sinclair Henderson Companies

Affected market: Investment and unit trust administration services

No. ME/2546/06

Please note that the full text of the decision can be downloaded by using the link on the right. What follows are extracts regarding the parties, the transaction, jurisdiction, third party views, assessment and decision.

The OFT's decision on reference under section 22(1) given on 24 October 2006. Full text of decision published 31 October 2006.

Please note that the square brackets indicate figures or text which have been deleted or replaced with a range at the request of the parties for reasons of commercial confidentiality.

PARTIES

Capita Financial Group Limited (Capita) is a subsidiary of Capita Group plc. Capita provides investment and unit trust administration services (including hosting services) for investment managers of collective investment schemes both in the UK and offshore.

The Sinclair Henderson companies (Sinclair Henderson) comprise Sinclair Henderson Limited, ACD Services Limited and Sinclair Henderson Fund Administration Limited. Prior to this transaction, these companies were part of a group, the parent company of which was Iimia Investment Group plc. Sinclair Henderson provides investment trust and unit trust administration services (including hosting services) for investment managers of collective investment schemes in the UK and to a certain extent in the Channel Islands. Sinclair Henderson's UK turnover was £[ ] million for the year ended 31 December 2005.

TRANSACTION

Capita acquired the total share capital of Sinclair Henderson on 14 July 2006, after receiving regulatory approvals from the Financial Services Authority (FSA) and the Guernsey Financial Services Commission. The parties submitted a satisfactory notification to the OFT on 29 August 2006. Therefore the administrative deadline is 24 October 2006. The statutory deadline is 29 November 2006.

JURISDICTION

As a result of this transaction Capita and Sinclair Henderson have ceased to be distinct. The share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met in relation to the supply of hosting services to open ended funds (by number of funds), in which the parties have a combined share of supply of [60 per cent to 70 per cent] with an increment of [less than 5 per cent]. The OFT therefore believes that it is or may be the case that a relevant merger situation has been created.

THIRD PARTY VIEWS

The OFT received mixed responses from third parties. Third party competitors were generally unconcerned by this transaction, as were the larger customers of these services. However, the OFT received a number of complaints from smaller customers who suggested that post merger there would be very few (if any) remaining service providers that could offer a tailored and personalised service to the smaller funds, particularly in relation to hosting. The main elements of these third party responses have been discussed above.

ASSESSMENT

The parties overlap in the supply of third party fund administration and hosting services to fund managers. Post merger, the parties have a combined UK share of supply of third party fund administration services to UK funds of [15 per cent to 25 per cent] with an increment of [5 per cent to 10 per cent]) by volume or [0 per cent to 10 per cent] (with an increment of [less than 5 per cent]) by value. In relation to the supply of hosting services to UK open ended funds, the parties have a combined share of supply of [60 per cent to 70 per cent] (with an increment of [less than 5 per cent]) by number of funds.

In relation to third party fund administration services, the parties submitted that there are several other providers that offer administration services to open and closed ended funds. This has been supported by third party comment. Moreover, some third party responses suggested that there was only limited pre-merger competition between the parties. This supports the parties' contention that prior to this merger, Capita and Sinclair Henderson focused on administration services to open ended funds and closed ended funds respectively.

In relation to hosting services supplied to UK open ended funds, the parties' combined share of supply is significant; however the increment is very low. Some third party customers raised concerns that there would only be a limited number of hosting service providers available to smaller fund managers post merger. However, one third party confirmed that it is an active competitor in the provision of hosting services to both large and small fund managers; another provided evidence of a number (albeit limited) of other hosting service providers available to fund managers.

The OFT received mixed responses from third parties. Third party competitors and larger customers were generally unconcerned about this transaction. The OFT received a number of complaints from smaller customers who suggested that post merger there would be very few (if any) remaining service providers that could offer a tailored and personalised service to the smaller funds, particularly in relation to hosting.

However, the OFT considers that barriers to entry and expansion are relatively low. Third party customers and competitors (including those third parties who expressed concerns about the merger) confirmed that new entry and diversification between individual administration services is relatively easy. In particular, third party responses indicated that a provider of third party administration services would not find it very difficult to begin offering hosting services to managers of open ended funds.

Notwithstanding the complaints from certain smaller customers, the OFT does not therefore consider that this transaction gives rise to competition concerns in light of the minimal increments to the shares of supply; the relatively low barriers to entry and expansion that exist in this sector; and the fact that there remain several other providers of third party fund administration services and a number (albeit limited) of other providers of hosting services (including one third party provider which has specifically stated that it offers its services to the smaller funds).

Consequently, the OFT does not believe that it is or may be the case that the merger has resulted or may be expected to result in a substantial lessening of competition within a market or markets in the United Kingdom.

DECISION

This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.

Back to top