Apollo and Keepmoat are set to merge by the end of this month after the Office of Fair Trading gave the deal the green light.
The social housing contractors announced the plan in July last year, with the aim of becoming a £1 billion market leading social housing and regeneration contractor in the space vacated by the collapsed Rok, Connaught and Kinetics.
Keepmoat chief executive David Blunt will be CEO of the Keepmoat ‘family of companies’, while Apollo chief executive Dave Sheridan will head up the southern division.
Both men told CN in July that they envisaged minimal impact on staff numbers because there is little regional and operational cross over between the firms.
The OFT report says joint venture firm Cavendish Square Partners – which already has a stake in each contractor after buying a number of private equity investments from HBOS, and is majority-owned by private equity group Coller Capital along with Lloyds Banking Group – is expected to set up a special purpose vehicle to acquire a controlling interest in both Apollo and Keepmoat.
As Cavendish only had minor stakes in both companies – 16.5 per cent in Keepmoat and 19.9 per cent in Apollo – the OFT said it considered the moves as two separate acquisitions, rather than a single merger.
It decided that the deals do not result in reduced competition, and did not need to be referred to the Competition Commission.
The OFT said Keepmoat and Apollo only overlap at a regional level in the East Midlands and East of England, with the overlap in supply of repair, maintenance and improvement and new build also limited.
The OFT concluded:
There is overlap in their RMI and new build services to the social housing sector, but the contractors are not close competitors due to their different geographical reach.
Apollo’s activities are concentrated in RMI, whereas Keepmoat has a much stronger presence in the new build social housing sector.
The existence of other strong suppliers in the market at both national and regional level is expected to continue to act as a sufficient competitive constraint on the group post-merger.
The report says: “Third parties do not consider the parties to be close competitors due to their different geographical reach.”
It adds: “Apollo’s activities are concentrated in the RMI sector whereas Keepmoat has a much stronger presence in the new build social housing sector.”
The OFT found that in the last 12 months, of the 60-70 tenders submitted by Keepmoat and the 50-60 tenders submitted by Apollo, they overlapped in 10-20 cases, and were successful in 0-10 of these, representing less than 0-10 per cent of all of the framework tenders submitted by either Keepmoat or Apollo in the last 12 months.
It said “that the existence of other strong suppliers in the market should act as a sufficient competitive constraint on the parties post merger”.
The report says the parties identified 10 national competitors (see box below) and at least three regional competitors in each region.
It also said there would be minimal impact on Rydon, a construction and maintenance firm in south England, in which Cavendish owns a 19.9 per cent stake.
Cavendish also has stakes in four suppliers - Gradus Ltd, Polypipe Ltd, Securistyle Ltd and WH Malcolm Ltd.
Keepmoat – which has an HQ in Doncaster and 3,000 staff - builds and refurbishes houses predominately in the social housing sector in the North of England and the Midlands with a UK turnover of £677m.