Competition Bureau statement regarding the acquisition by GardaWorld of G4S Canada

Position statement

OTTAWA, March 13, 2014 — This statement summarizes the approach taken by the Competition Bureau in its review of the acquisition by Garda World Security Corporation (GardaWorld) of G4S Cash Solutions (Canada) Ltd. (G4S Canada), pursuant to an agreement announced on August 28, 2013. The parties completed the transaction on January 17, 2014.

On March 13, 2014, the Bureau issued a qualified No Action Letter (NAL) to GardaWorld stating that the Commissioner does not, at this time, intend to make an application under section 92 of the Competition Act (Act) in respect of the transaction given, among other things, a commitment by GardaWorld to alter certain contracting practices.Footnote 1 The letter further advises that the Commissioner intends to monitor the post-merger competitive dynamics in the industry. Section 97 of the Act provides for a one-year period following completion of the transaction during which the Commissioner may challenge the transaction before the Competition Tribunal.

GardaWorld and G4S Canada were competitors throughout the province of Quebec, in Eastern Ontario and in the Greater Toronto Area. The Bureau concluded that the transaction raises competition concerns in the province of Quebec as GardaWorld and G4S Canada were the two largest providers of armoured car services. On March 13, 2014, GardaWorld committed to the Commissioner that it would not enforce certain terms in existing contracts for the provision of armoured car services in Quebec and that it would abide by certain contracting practices for the next three years. These changes are intended to make it easier for customers to switch to other suppliers, and facilitate the entry or expansion of competitors in the relevant markets.

In conducting its investigation, the Bureau interviewed many industry participants and reviewed a large volume of information obtained from the merging parties as well as third parties, including strategic documents, business plans and customer bidding/switching data.

Background

The transaction was a merger between two providers of cash solutions services, including cash-in-transit (CIT) services with armoured vehicles, ATM services, vaulting and safe services, and various other cash management services. Financial institutions, governments, retailers and other commercial businesses require cash solutions services to ensure the efficient management of their day-to-day operations and the safety and security of their employees. Customers in the cash solutions industry typically award their business through requests for proposals or quotes.

G4S Canada was a national provider, while GardaWorld ’s operations were limited to Quebec and parts of Ontario. The Bureau’s examination focused on CIT and ATM replenishment services (Armoured Car Services or ACS) in Quebec, as the Bureau concluded that there was effective remaining competition in other overlapping markets.

Economies of scale and density are an important determinant of competition between ACS providers. Specifically, the greater the number of service points a carrier has in close proximity to one another, the more competitive the carrier can be in that area. Large customers with many locations, particularly financial institutions, are important anchors of a provider’s network of routes. Pre-transaction, GardaWorld and G4S Canada served the largest and second largest customers of ACS services in Quebec, la Fédération des Caisses Desjardins du Québec, and the National Bank of Canada, respectively.

Analysis

The transaction represented the merger of the two largest competitors for ACS services in Quebec, each with eight branch locations servicing the province. The Bureau found that GardaWorld was the dominant firm and G4S Canada was a vigorous and effective competitor to GardaWorld in Quebec. Brink’s Canada Limited (Brink’s Canada) is the only significant remaining competitor in Quebec with six branch locations servicing Quebec.

The Bureau’s review focused on whether Brink’s Canada would effectively discipline GardaWorld ’s ability to exercise market power post-merger. For this reason, the Bureau sought and obtained court orders under section 11 of the Act compelling records, as well as oral testimony and written returns from Brink’s Canada. The Bureau analyzed this information concurrently with information obtained from the merging parties and other sources. This included analyzing a large volume of information relating to specific customer negotiations.

Information obtained from the merging parties and third parties revealed that barriers to entry in the provision of ACS are high, particularly for de novo entrants and smaller local/regional competitors. The Bureau considered reputational barriers, significant investment costs, the need to achieve sufficient scale to service larger customers and the long term relationships/contracts between GardaWorld , G4S Canada and their most important customers to be particularly significant barriers. Further, the Bureau did not identify any poised entrants outside of Canada.

The Bureau determined that an established ACS provider with a strong reputation may not face some of the same barriers as a de novo entrant; however, current contract terms such as renewal periods, and lengthy notice periods and penalty clauses for early termination hinder competition. In its review of a large sample of the parties’ contracts, the Bureau found that over 85% of contracts contain automatic renewal clauses and penalties for early termination. Moreover, contracts with larger customers tend to have terms of three years or greater.

GardaWorld ’s commitment

GardaWorld has committed to not enforce certain terms in existing contracts and to abide by certain contracting practices for a three year period. Specifically, GardaWorld will contract with its ACS customers in Quebec according to, among others, the following principles:

  • customers can terminate their contracts without penalty on 30 days written notice;
  • except at the request of the customer, contracts will be limited to two years in length and will not contain renewal clauses;
  • GardaWorld will not have a right of first refusal or be entitled to know about any contract offer a customer receives from a third party;
  • GardaWorld will notify customers 45 days in advance of any price increase; and
  • GardaWorld will notify all ACS customers in Quebec of the terms of its commitment to the Bureau within two weeks.

Decision

GardaWorld ’s commitment to not enforce certain terms in existing contracts and abide by certain contractual practices for the next three years together with the existence of ongoing and upcoming competitive bidding processes that may have an impact on competitive dynamics in the market were important factors in the Commissioner’s decision to issue a qualified NAL at this time. The Bureau intends to monitor the post-merger competitive dynamics in the industry. Should there be evidence of conduct in violation of the Act, the Commissioner will not hesitate to take appropriate action.

The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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