Completed acquisition by Meridian Law Limited of Applied Computer Expertise Limited

No. ME/1625/02

A report under section 125(4) of the Fair Trading Act 1973 on the advice given on 22 January 2003 to the Secretary of State for Trade and Industry under section 76 of the Act

The parties

Meridian Law Ltd (Meridian), is a wholly owned subsidiary of Mountain Software Group. Mountain Software supplies specialist software to solicitors, coroners' offices and barristers and has an estimated turnover of £6 million. Meridian's principal activity is the development and marketing of computer software and hardware particularly for barristers' chambers. In the year to 31 October 2001 Meridian's turnover was £2,220,000, with a pre-tax profit of £134,000 and gross assets of £1,645,000.

Applied Computer Expertise Ltd (ACE), has as its principal activity the sale of computer equipment and software for use by barristers' chambers. In the year to 31 March 2001 it had sales of £1,333,000, a pre- tax profit of £96,000 and gross assets of £431,000.

Transaction

Meridian purchased the full share capital of ACE for a consideration of (see note 1) on 8 November 2002.

Jurisdiction

The merger qualifies on the share of supply test of the FTA in respect of the supply of specialised office management systems for barristers in England and Wales, a substantial part of the UK.

Assessment and Recommendation

The parties overlap in the supply and development of software management systems (including functions such as diary, case fees, reporting) for barristers' chambers. As a result of the merger the merged business has a near 100 per cent share of supply in this sector with one much smaller competitor, Libra, remaining in the market. The recent poor competitive performance of ACE suggests that Meridian may have moved towards this position without this merger, as ACE was losing customers and was not in a position to make the necessary investment to improve its out-dated software. The parties are only small players in the much larger office management software market (valued at over £1 billion).

The geographic market is considered to be England and Wales, as the parties' product is specifically tailored to the legal systems present in this area.

Following the merger direct competition within the sector is virtually absent, but Meridian will continue to face a number of competitive constraints post-merger, primarily from the supply side. Large numbers of software firms with the requisite technical knowledge are in a position to bring similar software to the market with relatively small costs in response to suitable financial incentives, including 150 or so software firms currently active in the legal sector.

Entry could also arise from sponsorship by barristers' chambers. Customer dissatisfaction has precipitated competitive entry in the past, and the potential for such entry remains in the future in the event of Meridian offering an unsatisfactory service. Libra, a more recent entrant, was brought into the market by a barrister dissatisfied by the price and quality of other systems with minimal software development costs. The merger seems to present a good opportunity for Libra, for the 100 ex-ACE customers will need to make new contracts for software systems over the next year, either with Meridian or an alternative.

Competition over time has been 'for' the market rather than within it, with the new entrant developing a superior product and gaining a strong position, often with the incumbent being forced to exit the sector.

Third parties have been consulted in the usual way. Barristers' chambers generally expressed concern that the merged business would not be constrained by any competitors, and may take advantage of this position to increase prices. Software companies felt the development of a competing product would be relatively straightforward in the light of suitable financial incentives.

While we note the concerns expressed by barristers' chambers, the above factors suggest Meridian faces sufficient competitive constraints from alternative software providers, the threat of new entry, and from the power of the chambers themselves, to constrian its behaviour post-merger even if customers may not switch immediately in response to a worsening of the product offered by Meridian.

On these grounds, we conclude that this merger does not raise competition concerns, and recommend that it should not be referred to the Competition Commission.

NOTES

1. Details removed at the request of the parties

Back to top