COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case No: 65/LM/Nov01
In the large merger between:
Bid Industrial Holdings (Pty) Ltd
and
Magnum Security (Pty) Ltd
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Reasons for Decision
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APPROVAL
On 29 January 2002 the Competition Tribunal issued a Merger Clearance
Certificate approving the merger between Bid Industrial Holdings (Pty) Ltd and
Magnum Security (Pty) Ltd in terms of section 16(2)(a). The reasons for the
approval of the merger appear below.
The merger transaction
Bid Industrial Holdings (Pty) Ltd (“Bid Industrial”), a wholly owned subsidiary of
the Bidvest Group Limited, is acquiring as a going concern, the guarding security
business of Magnum Security (“Magnum”), via Shield Security, a Bidvest
subsidiary.
Rationale for the Transaction
It seems the security guarding industry is very fragmented and the merger will
allow the companies better opportunity to compete and give them “critical mass”.
It would also facilitate economies of scale with respect to operations in the
smaller geographical areas such as Richards Bay and East London. 1
1 Record, p 281
The relevant product market
The acquiring firm is engaged in a number of activities, including freight
management (Bidfreight); catering, hospitality & foodservice (Caterplus);
outsourcing of cleaning & laundry services (Bidserv); combined foods; travel
related financial services (Rennies Financial Services); corporate services,
fastenings and packaging (Bidpac) and commercial office products (Bidoffice).
Bidserv entered the security industry in 1998 through the acquisition of
Shield Security. The target firm, Magnum, is involved solely in the business
of guarding.
The provision of guarding services occupies the largest percentage of the
security industry in general. The security industry can be divided into the
following services none of which are substitutable and can therefore constitute
separate relevant product markets
1. design, installation and maintenance of electronic security
products;
2. monitoring and response;
3. handling of cash and highvalue goods, prisoner services;
4. consulting and investigation; and
5. guarding services 2.
The Commission confined its analysis to the market for the provision of
guarding services because it is only this activity in which the target firm,
Magnum, is involved, hence the only product overlap.
Guarding involves the safeguarding of fixed assets and property; patrolling
privately owned and public spaces and policing strike actions.
Geographical Market
The parties provided the Commission with market shares based on geographical
markets that coincided with provincial boundaries. On this approach the
geographic overlap is Western Cape, Eastern Cape, Gauteng and KwaZulu
2 That the security industry comprises these different categories is evident from a market report
conducted by Credit Suisse First Boston, wherein it estimates that the guarding business
accounts for approximately 55% of the industry.
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Natal. Nevertheless the Commission defined the geographic market as ‘local’, by
which we understand them to mean an area smaller than a province. This is
because according to the Commission customers typically employ guarding
services in closest proximity to their premises. From information submitted by the
parties at the hearing to the effect that most security contracts require a local
infrastructure, the Tribunal endorses the view that the market is in all likelihood,
local. However, no market shares as to local area had been submitted by the
time of the hearing.
We were nevertheless provided with the provincial postmerger market shares,
which are as follows 3:
Gauteng 7%
KZN 5.5%
E. Cape 1.5%
W. Cape 3%
Upon the request of the Tribunal panel, the parties furnished additional data
delineating figures per local area, based on the total number of employees
employed by each respective firm in the relevant area. These employee figures
comprise only security guards employed in the guarding sector, since these are
the individuals required to register with the security Officers’ Board, by law . The
parties argued that these employee numbers give an accurate indication of
market shares, and are an accepted industry proxy for determining a firm’s
market position.
The employee figures revealed that the combined entity’s market share in any
one locality would range from between 1.4% and 25% (the higher percentages
arising in areas where one or other firm was not previously engaged, therefore
this transaction will not change the competitive position in those areas at all). The
parties pointed out that the percentages were illustrative of the top 5 to 10
companies only in each particular local area.
In areas in which there is a consolidation of operations of the two firms, the
combined employee numbers postmerger, as well as ranking by firm size, is set
out below 4:
Richards Bay
3 This information was based on data obtained from Credit Suisse research as well as from the Security
Officers’ Board, a regulating body with whom all security officers are required to register in terms of the
Security Officers’ Act.
4 The remaining data supplied related to areas either in which neither firm was active, or areas in which
only one party had a presence. Accordingly, the competitive situation in these areas would not change.
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Magnum Shield Combined Entity in
Local area
45 employees 38 employees 7.1%
Size ranking out of 11 firms 5th
Pietermaritzburg
Magnum Shield Combined Entity in
Local area
29 employees 11 employees 3.3%
Size ranking out of 11 firms 11th
East London
Magnum Shield Combined Entity in
Local area
208 employees 18 employees 9.6%
Size ranking out of 12 firms 3rd
Accepting these employee figures as a reliable proxy for market shares, the
Tribunal determines that the merging parties will not be dominant in any
particular local area.
Barriers to entry
There are approximately 2,776 security firms that employ 145,000 guards
competing with the merging firms. The parties estimate that over 1,000 firms
have entered the market over the last six months. This significant number of new
entrants implies low entry barriers. The industry is very fragmented, the top 12
firms having a combined market share of just 12%. A plethora of international
investors are also entering the local market by means of either new acquisitions
or by expanding local activities.
Countervailing power
The parties also submitted at the hearing that insofar as the consumer generally
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tenders for security services, the pricing is dictated by the market and not by the
industry. The provider of security guarding services is not able to dictate a
particular price, since it is negotiated with the client. The presence of competition
from the array of other security guarding firms in each locality will serve to
restrain price increases.
Public Interest Issues
There will be no retrenchments since employees from Magnum will be
transferred to Shield without any conditions of employment alterations.
Conclusion
The Tribunal endorses the Commission’s finding that this transaction will not
substantially lessen or prevent competition in the relevant market and
accordingly approves the transaction unconditionally.
_____________ 6 February 2002
N.M. Manoim Date
Concurring: D. Lewis, C. Qunta
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