By Lucy Caulkett-
The decision by the Competition and Markets Authority (CMA) comes following an in-depth investigation into market leader JLA’s takeover in May 2017 of its closest competitor Washstation. The 2 firms supply managed laundry services to higher education providers including universities, colleges and student accommodation providers.
The merger was investigated by a CMA group of independent panel members which today published its final decision. The group found a substantial loss of competition resulting from the merger and that customers may be expected to pay more for, or receive lower quality, managed laundry services.
PP Residential Services Limited (“UPP”) is a provider of student accommodation infrastructure that support services in the UK. It has approximately 35,000 rooms in operation or development through long term partnerships with 16 universities in the UK. UPP procures managed
laundry services for its student accommodation.
Findings show that other firms offering laundry services to higher education providers are not currently able to compete effectively with JLA / Washstation. The investigation also found that any future growth by these smaller rivals would be unlikely to offset the loss of competition resulting from the merger, either sufficiently or quickly enough.
Additionally, it was found that companies providing laundry services in other sectors, such as healthcare or leisure, would find it difficult to enter the higher education sector and compete effectively against JLA / Washstation in the foreseeable future. In order to address the loss of competition resulting from the merger, the CMA has decided that JLA must sell Washstation’s higher education business to a new owner to be approved by the CMA.
The scope of pp tenders varies depending on the objective of the site as a whole. However, there is the possibility of extending or renegotiating with the incumbent provider in circumstances
where three or four contracts run in parallel for different halls of residence and all end at different times. UPP said that the vend price is set following consultation with its university partners. It indicated that providers have limited scope to challenge the vend price.
Although reputation and track record is a factor Upp take into account when procuring laundry services UPP noted that students, as end users would not necessarily benefit directly from remedial action taken by UPP. Ultimately, UPP said that it is a balancing act between providing
students with a level of service commensurate to the level that they expect versus a commercial business operation.
The Competition Market Authority concluded that the level of service has declined due to the
acquisition by JLA rather than any commercial disruption caused by the transition. Issues of overhead costs, revenue and profit sharing margin were found to have given JLA a monopoly in the procurement of laundry services, making it difficult for competitors to enter the market.
Based on the standard of the services provided since the merger and the
loss of Washstation as a competitor, UPP believed that the market for
managed laundry services has become less competitive.
Stuart McIntosh, Inquiry Chair, said:
Our decision will preserve competition and choice for universities and other providers of student accommodation. The CMA thoroughly monitors mergers across the UK. Where it finds concerns it will take action, and has the ability to reverse completed mergers to ensure that customers are not worse off.