New Zealand Law Society - Commission turns down bid for sprinkler inspection services merger

Commission turns down bid for sprinkler inspection services merger

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The Commerce Commission has refused clearance for Aon New Zealand to acquire the fire sprinkler and alarm inspection business of Fire Protection Inspection Services Ltd.

The Commission says, to grant clearance, it must be satisfied that a proposed merger would not be likely to have the effect of substantially lessening competition in any market in New Zealand.

The Commission’s assessment focused mainly on the effects of the proposed merger on the inspection of new sprinklers and the re-inspection of existing sprinklers in each of three regional markets: the upper North Island, the lower North Island and the South Island.

Commission Chairman Dr Mark Berry says the proposal involved the two largest national sprinkler inspection firms and would have resulted in most sprinkler inspectors in New Zealand being employed by the same company.

“There are currently a limited number of competitors that provide sprinkler inspection services in many areas in New Zealand. If the proposed merger was to have proceeded, most markets would have been left with only two competing providers.

“The merged entity would have been in a dominant position as it would have employed the bulk of all inspectors.  We were concerned that this proposed merger would have, therefore, eroded choice, which could have led to higher prices or lower quality services,” says Dr Berry.    

The Commission was not satisfied that the smaller, primarily regional competitors, would have sufficiently constrained the merged entity. In addition, it did not consider that a sufficient number of inspectors would have been likely to enter the affected markets in a timely manner.

“In the South Island, the merger would have resulted in the merged entity being both the only inspection company offering new sprinkler inspection services, and the major supplier of sprinkler re-inspections. The merger would also have resulted in significant overlap in the new inspection and re-inspection markets in the North Island,” says Dr Berry.

Aon’s clearance application and the Statement of Preliminary Issues can be viewed here.

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