Competition regulator says Capita must sell all or part of software business

The Competition Commission has said that a merger between software companies Capita and IBS OPENSystems will damage competition in one of the companies' markets.

The Commission said that Capita's purchase of IBS may allow it to take advantage of a lack of competition and raise prices. It said that now that Capita has bought IBS it is one of only two suppliers in the market for revenues and benefits software, and that it was unlikely that new makers of competing software would emerge to change the state of competition.

"In a stable market with little prospect of entry by new suppliers, our provisional conclusion is that the enlarged Capita revenue and benefits business will be able to take advantage of the lack of competition, for example by increasing prices or reducing levels of service to its customers," said Christopher Clarke, chairman of the inquiry group into the issue.

The Commission identified two markets in which Capita and IBS operate. The first is the market for revenues and benefits software. This software is used by local authorities to calculate and help collect council tax and business rates, as well as to make benefits payments.

It was in relation to the market for this kind of software that the Commission said the deal is unacceptable.

"We consider it likely that the adverse effects of the merger will have an impact on all customers, whether they are in the process of tendering for new revenues and benefits software or already have a contract for such software in place," said Clarke.

The second market it identified was for social housing software systems for social housing organisations. 

"We do not have similar concerns about the market for social housing software, where there are considerably more suppliers in competition with the merged company," said Clarke.

The Commission said that it would conduct a consultation into ways that Capita could render the merger acceptable. It said Capita may have to sell all or parts of IBS.

"The Group considers that divestiture of the entire IBS business to a suitable purchaser would be an effective remedy for the expected SLC [substantial lessening of competition] as it would restore the competitive situation absent the merger," said the Commission.

"The Group is considering whether an alternative divestiture package involving only the R&B [revenues and benefits software] business unit of IBS could be effective." it said. "The [Commission] will normally seek to identify the smallest viable, stand-alone business that can compete successfully on an ongoing basis."

The Commission said that there were no behavioural remedies that would be likely to solve the problem.