Competition Bureau statement regarding Iron Mountain’s acquisition of Recall
OTTAWA, March 31, 2016 — The Competition Bureau announced on March 31, 2016 that it had reached a consent agreement with Iron Mountain Incorporated (Iron Mountain), which resolves the Bureau’s competition concerns related to Iron Mountain’s proposed acquisition of Recall Holdings Limited (Recall). Following its review, the Bureau concluded that the acquisition of Recall would likely have resulted in a substantial lessening or prevention of competition for the supply of records management services in certain markets in Canada.
This statement summarizes the approach taken by the Bureau in its review of the proposed acquisition of Recall by Iron Mountain.
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As outlined in an agreement announced June 8, 2015, Iron Mountain proposes to acquire all of the outstanding ordinary shares of Recall through a scheme of arrangement under Australian corporate law for US$2.6 billion.
Iron Mountain and Recall are suppliers of records management services in Canada and globally. In addition, the parties also both offer shredding services, which is the collection and destruction of paper documents and data management services which involve backing up a business’ data, including tape records storage and cloud storage. The focus of the Bureau’s review was on whether the proposed acquisition was likely to substantially lessen or prevent competition in the supply of records management services in Canada.
In conducting its review, the Bureau cooperated with a number of its international counterparts, including the United States Department of Justice, the Australian Competition and Consumer Commission and the United Kingdom’s Competition and Markets Authority. The Bureau also consulted with a broad range of market participants, including customers, competitors and industry stakeholders.
The Bureau analyzed a substantial volume of documentary evidence and made use of a range of qualitative and quantitative analytical tools.Footnote 1 The Bureau’s quantitative analysis included calibrating a merger simulation model in an auction marketFootnote 2 context.
Canadian businesses create a large volume of physical paper records which they need to retain, secure, and store for a variety of commercial and legal reasons. Businesses often outsource their storage needs to service providers, such as the parties. Many of these businesses will issue tenders to secure the services of a records management firm and enter into a long term contract. Customers are charged fees for storage, retrieval and removal, among others.
The parties overlap in the supply of records management services in six Canadian cities: Toronto, Montreal, Ottawa, Calgary, Edmonton and Vancouver. The Bureau’s review concluded that the parties compete in both local markets, and distinct multi‑city markets, where customers require service in more than one city.
Multi-city customers are typically larger corporate and government entities requiring higher volumes of storage and having a greater number of locations. These customers require records storage in multiple cities with a single supplier who can service all of their locations. As multi‑city customers often require higher volumes of storage, dealing with a single supplier allows them to receive volume discounts, simplify their administrative processes, and reduce costs associated with procurement and contract management.
The Bureau assessed two potential alternatives to records management services: in‑house document storage and the digitization of documents. The Bureau concluded that neither option was a close substitute to records management services as they are cost prohibitive and do not provide the level of service required by the customer. Going forward, it is likely that customers will reduce their paper footprint; however, there are certain legal requirements and practical reasons which necessitate keeping certain paper records.
The Bureau’s review found that the parties are close competitors for both local and multi‑city customers. Further, the parties are the two largest suppliers of records management services in Canada. Due to their size and reputation in the industry, the parties have frequently bid against one another resulting in lower storage prices for consumers.
In four of the six local markets noted above, there are limited competitive options for customers seeking document storage. The proposed acquisition and subsequent removal of Recall would considerably limit customers’ competitive options. Similar to the findings in these local markets, the Bureau’s review found that Canadian multi‑city markets are characterized by few effective competitors. In order to effectively compete in this market a supplier requires scale to be able to meet the multi‑locational needs of customers. A supplier must also have sufficient financial resources to overcome high customer switching costs. These switching costs are the result of the numerous fees associated with permanently removing boxes from a supplier’s facilities.
The Bureau concluded that an existing competitor or new entrant’s most significant barrier to expansion or entry is the payment of these customer switching fees. In the absence of the ability to win its competitors’ customers through the payment of these customer switching fees they would face difficulty in recouping infrastructure and equipment start‑up costs in multiple cities. The review also found additional barriers to entry and expansion, such as the security certifications required to handle confidential documents and the importance of a firm’s reputation as an established and trusted vendor.
As a result of these barriers, the Bureau concluded that the timely entry or expansion of a new or existing firm is not likely on a scale sufficient to discipline a potential price increase by Iron Mountain post‑transaction. Furthermore, the proposed acquisition would remove a vigorous and effective competitor from local and multi‑city markets with limited effective remaining competitors.
Remedy and conclusion
Iron Mountain has entered into a registered consent agreement with the Bureau, the terms of which require Iron Mountain to sell records management assets, including certain facilities and customer contracts, in all six cities where the parties overlap. Pursuant to the consent agreement, these assets must be sold to one approved buyer to be determined after the closing of the proposed transaction. The Bureau is confident that the implementation of the consent agreement will adequately resolve its concerns regarding the merger by requiring significant divestitures to a purchaser who will then be in a position to offer records management services in local and multi‑city markets.
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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