The Key / RM merger inquiry
| Case Outcome | Mergers - phase 1 clearance |
| Date | 11 April 2023 |
| Decision Date | 11 April 2023 |
| Subject Matter | Mergers |
| Court | Competition and Markets Authority (EW) |
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Acquisition by The Key Support
Services Limited of Schools
Educational Software Limited
Decision on relevant merger situation and substantial
lessening of competition
ME/7037/23
The CMA’s decision on reference under section 22(1) of the Enterprise Act 2002 given on
9 June 2023. Full text of the decision published on 18 July 2023.
Please note that [] indicates figures or text which have been deleted or replaced in
ranges at the request of the parties or third parties for reasons of commercial
confidentiality.
SUMMARY
1. On 31 May 2023, The Key Support Services Limited (The Key) acquired Schools
Educational Software Limited (SES) from RM Education Limited (RM) (the Merger).
The Key and SES1 are together referred to as the Parties, and for statements
referring to the future, the Merged Entity.
2. The Key through its brands Arbor Education (Arbor) and ScholarPack supplies
management information system (MIS) software to schools in England, as does
SES through its own MIS software, RM Integris. SES also supplies a finance
management system (FMS) software to schools in the UK, RM Finance.
3. The Competition and Markets Authority (CMA) believes that it is or may be the case
that each of The Key and SES is an enterprise; that these enterprises have ceased
to be distinct as a result of the Merger; and that the share of supply test is met. The
four-month period for a decision has not yet expired. The CMA therefore believes
that it is or may be the case that a relevant merger situation has been created.
1 Previously registered as RM Educat ional Services Limited.
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4. The CMA has considered the impact of the Merger against the pre-merger
conditions of competition. This was notwithstanding that the CMA concluded that
there is a realistic prospect that RM would have sold the RM Integris and RM
Finance businesses to another purchaser absent a sale to The Key. However, the
CMA did not find any evidence to indicate that a sale to the alternative purchaser
RM had discussions with prior to entering into the Merger would have resulted in the
Parties exerting a stronger competitive constraint on each other than was the case
in the pre-merger conditions of competition. As such, in line with its guidelines, the
CMA did not consider it necessary to further pursue this alternative counterfactual
as doing so would not make a material difference to its competitive assessment.
5. The Parties overlap in the supply of MIS software to schools in England. The CMA
previously considered whether this market could be further segmented by customer
group, and specifically whether the frame of reference could be restricted to state-
funded schools only. In this case, the CMA received evidence that there are
differences in terms of demand-side substitutability, supply-side substitutability and
competitive landscape between state-funded schools and independent schools. On
a cautious basis, the CMA therefore excluded independent schools from the frame
of reference.
6. The evidence available to the CMA indicates that the appropriate geographic frame
of reference is England.
7. The CMA has therefore assessed the impact of the Merger in the following frames
of reference:
(a) Supply of MIS software to state-funded schools in England; and
(b) Supply of FMS software to state-funded schools in England.
8. The CMA has assessed two principal theories of harm:
(a) Horizontal unilateral effects in the supply of MIS software; and
(b) Foreclosure of competing MIS software providers.
Horizontal unilateral effects in the supply of MIS software
9. The CMA found that the supply of MIS software to state-funded schools in England
is a concentrated industry, with three providers serving just over 85% of these
schools as at October 2022. The Key is the second largest MIS software provider
with a share of supply approaching [20-30]% by number of schools, behind ESS
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SIMS (ESS) who is the incumbent MIS software provider for over half of all state-
funded schools in England. As at October 2022, SES was the third largest MIS
software provider by number of schools, with a (much smaller) share of supply of [5-
10]%. As set out in the CMA’s Merger Assessment Guidelines, horizontal unilateral
effects in differentiated markets are more likely where the merger firms are close
competitors and where one merger firm has a strong position in the market.2
10. Notwithstanding these shares and the existence of some degree of market
concentration, the CMA’s investigation found a number of market features that
suggested that the likely competitive impact of the Merger would be limited. First,
the CMA found evidence that the market was highly competitive prior to the Merger
as evidenced by the very large number of schools switching MIS software provider
between October 2021 and October 2022. Secondly, consistent with the more
limited probative value of shares of supply in differentiated markets,3 the
investigation also showed that, prior to the Merger, SES was presenting a weaker
constraint on The Key than is implied by its share of supply and that certain other
MIS software providers (ESS and Bromcom) were imposing a more important
constraint on The Key. Internal documents provided by SES also showed that it was
not likely to become a greater constraint on The Key in the foreseeable future.
11. Although the CMA found evidence that there was a material competitive interaction
between the Parties, other evidence suggested it was an asymmetric one,
consistent with The Key having a more sophisticated MIS software offering than
SES. Notably, the switching and tender data provided by the Parties indicates that in
the three years preceding October 2022 SES had limited success in winning new
customers, only won a handful of schools switching from The Key, and the Parties
competed in only a relatively small number of tenders. The likely absence of a
material competitive impact from the Merger was further corroborated by third party
evidence, with the majority of third parties that engaged with the CMA’s investigation
not raising concerns regarding the Merger.
12. The CMA therefore has ultimately concluded that, notwithstanding the Parties being
close competitors, the Merged Entity will continue to face strong competition from
two close rivals in particular (ESS and Bromcom). In addition, the Merged Entity will
also be constrained by smaller providers, including Juniper Education (Juniper),
IRIS and Compass Education (Compass), albeit to a more limited extent.
2 Merger Assessment Guidelines (CMA1 29), March 2021, paragraphs 4.10-4.1 2.
3 CMA129, March 2021, paragraphs 4.1 4-4.15.
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