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24 Jul 2014
The Gym Group / Pure Gym merger stall due to CMA's 'narrow' view of health club market: Algar
By Jak Phillips
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Algar branded the CMA’s conclusion a 'perplexing decision'
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The Competition and Markets Authority (CMA) decision to refer the proposed merger of The Gym Group and Pure Gym to an in-depth investigation – a move which prompted the low cost operators to scrap the deal – was based on a “narrow definition of the market” according to health and fitness industry analyst Ray Algar.
Algar – who operates Oxygen Consulting and the award-winning social responsibility project Gymtopia – branded the CMA’s conclusion a “perplexing decision” in a recent analysis shared with Health Club Management. He said the CMA’s reasoning that the proposed merger could drive up prices for gym-goers didn’t make sense, given the budget chains’ similar operating models, and suggested the move may have been a case of the newly-formed authority taking the opportunity to “flex their regulatory powers on an industry with a very poor record of putting customer interests first.”
Algar said the CMA’s “narrow” approach to defining the market of the gym brands’ – which would have made up 100 of the UK’s 6,000 gyms had the merger gone through – played a crucial part in its referral decision.
“Rather than assume that Pure Gym and The Gym Group compete against a wide array of fitness providers, they have assumed they compete simply in the low-cost gym segment,” he wrote.
“This definition matters because they hold a dominant market position (measured by clubs and members) in the UK low-cost segment, but not if a wider definition is used – the earlier point made by their private equity partners.”
To read Algar’s full analysis of developments, click here.
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