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Commission declines clearance for sprinkler inspection services merger

3 March 2017

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

To grant clearance, the Commission 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 said the proposed merger 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,” said 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,” said Dr Berry.

A public version of the written reasons for the decision will be available in due course on the Clearances Register.

Background

Aon and Fire Protection Services Limited provide a range of fire protection services, including inspection of fire sprinkler and fire alarm systems. Both companies operate nationwide. In its role as a Sprinkler System Certifier, Aon also certifies new sprinkler systems for compliance with the specified New Zealand standard and approves and lists contractors certified to install or inspect sprinkler systems.