Completed acquisitions by Torex Medical Systems Limited of the primary healthcare business of InHealth Group SA and the secondary healthcare business of InHealth Group SA

No. ME/1147/03

A report under section 125(4) of the Fair Trading Act 1973 on the advice given on 9 June 2003 to the Secretary of State for Trade and Industry

Jurisdiction

The mergers satisfy the share of supply test of the FTA in respect of the supply of computer software information systems used in the healthcare service, in particular in the supply of primary and secondary medical systems.

The parties

Torex Medical Systems Ltd is a wholly owned subsidiary of Torex plc (Torex). Torex is a leading supplier of healthcare IT solutions for clinical and administrative applications, and also supplies computer systems to the retail sector. In the year-ended December 2002 Torex reported pre tax profits of £14.7million on turnover of £161.8million and gross assets of £237.2million.

InHealth Group SA provides managed healthcare services, comprising four major divisions; Lister Bestcare, Rocialle Medical, Cardinal Healthcare and InHealth Solutions. In the year-ended March 2002 it reported a pre tax loss of £1.9million on turnover of £25.3million and gross assets of £137million.

Background

Torex has purchased the primary and secondary care medical systems businesses of InHealth for a consideration of £3.5 million and £2 million respectively. These are separate transactions, each acquisition having a different and distinct date of completion, although advice is provided jointly for both acquisitions. The  businesses acquired from InHealth have sales of approximately £6.3 million in primary and £2.9 million in secondary healthcare systems.

The OFT recently advised on the acquisition by Adastra Software of Owl Software, concerning the provision of out-of-hours GP medical software products. This acquisition was not problematic as barriers to entry were low and new entrants into the market were expected.

Assessment and recommendation

These transactions concern the supply of computer software and related hardware in the healthcare sector, in particular for primary and secondary medical care systems in the UK. In both primary and each type of secondary care, the increment to Torex's share of supply is small, with the largest increment being 3.6 per cent, creating shares between 25 and 30 per cent in the UK. The scope of the geographic market is likely to be the UK given the national characteristics of systems and purchasing requirements. The functions and specifications of these systems are determined by the NHS and Department of Health.

In the supply of primary care systems, which meet the needs of GPs, there are other significant suppliers present including EMIS and InPS, with third parties confirming their relative sizes. Secondary care systems, which are supplied to hospitals, are likely to be made up of the following discrete product sectors where the merger gives rise to some overlap:  for laboratory systems, InHealth previously sold Torex products, such that there is no increment for these products; in radiology, the parties consider there to be three other significant suppliers; for the supply of systems to hospital trusts, while the parties will have the largest share, there are seventeen other suppliers noted to be active in this area. Therefore, this combination of significant or numerous competitors would be likely to prevent the combined entity from having any significant degree of market power that it could exercise to the detriment of customers. In addition, there is an increasing tendency for GPs and other NHS bodies to seek competitive tenders for the supply of IT systems in the Official Journal of the European Community.

No view has been reached on barriers to entry – in view of the lack of competition concerns it is not necessary to consider in detail whether this provides a constraint given the degree of competition and constraints already present. Third parties contacted raised no substantive concerns about either acquisition by Torex.

For the reasons stated above we conclude and recommend that the acquisitions by Torex should not be referred to the Competition Commission for investigation.

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