Competition Bureau statement regarding the proposed amalgamation of Modular Space Corporation and Williams Scotsman International, Inc.

OTTAWA, June 23, 2016 — On June 23, 2016, the Bureau issued a No Action Letter (NAL) with respect to the proposed amalgamation of Modular Space Corporation (ModSpace) and Williams Scotsman International, Inc. (Williams Scotsman) (the Parties), with Williams Scotsman surviving as a subsidiary of ModSpace (the proposed transaction). The NAL indicates that the Commissioner of Competition does not, at this time, intend to make an application under section 92 of the Competition Act in respect of the proposed transaction.

This statement summarizes the approachFootnote 1 taken by the Competition Bureau in its review of the proposed transaction, which was originally announced on March 16, 2016.

In the course of its review, the Bureau conducted interviews with numerous market participants, including customers and competitors; reviewed documents produced by the Parties; and analyzed transaction and bid data provided by the Parties.

Background

ModSpace and Williams Scotsman are the two largest lessors of modular units and related services in Canada. Modular units include, for example, office trailers, lavatories and lunch rooms, and are typically rented on a project‑specific basis by commercial and industrial customers who solicit requests for quotes. Modular units can be re‑configured to varying degrees to meet the demand specifications of each customer. Modular unit suppliers are also responsible for delivery and on‑site installation services.

ModSpace and Williams Scotsman both have branch locations in: Prince George, BC; Vancouver, BC; Edmonton, AB; Calgary, AB; Saskatoon, SK; Sarnia, ON; the Greater Toronto Area (GTA), ON; Ottawa, ON; and Montreal, QC. Neither party to the transaction manufactures modular rental units in Canada. Most activities associated with their modular unit rental businesses, including the design, manufacturing, delivery and installation of modular units, are outsourced to third parties.

Analysis

The Bureau started its assessment by considering various possible product and geographic market definitions. Modular unit specifications range from less differentiated, single‑wide units to more customizable, multi‑unit complexes. Customers value, and therefore typically pay a premium for, the efficient design and free flowing space provided by multi‑unit complexes. The Bureau assessed competitive effects under different possible product market definitions to capture all likely outcomes of the proposed transaction. The relevant product markets considered by the Bureau include treating

  1. single‑wide units as separate from multi‑unit complexes; and
  2. single‑wide units and multi‑unit complexes as together in the same relevant market.

In terms of geographic markets, the freight costs of transporting units are an important component of the total costs incurred by a supplier, and are passed on to the customer. In each overlapping branch location of the Parties, the Bureau sought to identify the furthest distance from which it is cost‑competitive to supply local customers. Generally, freight costs are a smaller proportion of total costs for multi‑unit complexes, and/or for projects requiring a long‑term lease agreement. Therefore, the geographic market is likely broader for these types of projects compared to short‑term lease agreements for single‑wide units.

The Bureau focused its analysis on the Parties’ overlapping branch locations in Edmonton, Calgary, Saskatoon, Sarnia, the GTA and Ottawa where the Parties both have a significant presence. In terms of identifying possible effective remaining competitors, ATCO Structure & Logistics (ATCO) is present in each local overlap market and supplies both single‑wide and multi‑unit complexes. BOXX Modular (BOXX) is the other multi‑location competitor with branch locations in each overlap market except for Sarnia and Ottawa; similar to ATCO, BOXX also supplies both single‑wide and multi‑unit complexes. Apart from ATCO and BOXX, each overlap market contains a unique subset of regional suppliers who typically only operate a single branch locations. Of these regional suppliers, most typically focus on sales of single‑wide units. In addition to companies like the Parties whose market presence is limited to their role as lessors, some manufacturers of modular units also have rental fleets. Manufacturers typically lease multi‑unit complexes as well as single‑wide units; it should be noted, though, that the rental fleets of manufacturers tend to be relatively small and not their primary business focus.

The Bureau calculated market shares for each overlap market and, using an auction model, estimated price effects. Various different permutations were tested, including

  1. considering single‑wide units and multi‑unit complexes separately first, and then together as part of the same relevant product market;
  2. varying the boundaries of the geographic market to include or exclude particular suppliers; and
  3. varying the range of costs between the lowest cost competitor and the highest cost competitor in the market.

The Bureau also assessed barriers to entry and expansion. The ability to supply a diverse product mix, as well as the scale of entry or expansion required, are both important considerations when assessing the ability of potential competitors to enter or expand into a new area in a timely and sufficient manner. The barriers to serving large project customers requiring highly customizable units are therefore higher compared to the barriers to serving smaller project customers requiring less differentiated units. Recent examples of expansion by companies such as ATCO and BOXX suggest that barriers in the industry are likely not prohibitive, especially for established players.

Across the range of relevant markets considered, the Bureau determined that there were sufficient effective remaining competitors in most overlapping local markets, including companies such as ATCO and BOXX. Additionally, where certain markets exhibited more limited competition, the possibility of expansion by key competitors, as has occurred in other geographic markets, leads the Bureau to conclude that the proposed transaction is unlikely to result in a substantial lessening or prevention of competition.

Conclusion

Based on the presence of a sufficient number of effective remaining competitors and moderate barriers to entry and expansion, the Bureau concluded that the transaction is unlikely to result in a substantial lessening or prevention of competition for the rental of any type of modular unit in any relevant market in Canada.

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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