- Created: Thursday, 04 August 2011 09:19
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Connect Distribution of Birmingham has acquired the eSpares online spares business for an undisclosed sum but, in the process, has tripped the interest of the Office of Fair Trading (OFT) for a possible problem under the Enterprise Act.
Stock Market Wire reported on Monday that the OFT is considering whether arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation under the Enterprise Act 2002.
Should it be found to be a relevant merger situation, the OFT will further consider whether the creation of that situation may be expected to result in a substantial lessening of competition for goods or services that warrants reference to the Competition Commission for investigation and report.
Whilst details are sparse at present and, when contacted on the matter Connect declined to comment on any questions, we are led to believe from sources close to the matter that Connect paid in the region of £4-5 million for the eSpares business. This has some with knowledge of the industry somewhat confused as eSpares as a business has never actually made a profit and this seems a large sum of money to pay for little more than a website.
Sources close to the matter revealed that £1.2 million in cash was paid with a further £3 million or so to follow for all stock and assets of eSpares as well as a write off of debts to Connect Distribution. Further comments indicated that all eSpares staff were to be made redundant shortly and all call handling as well as distribution to be moved to Connect's premises in Birmingham, the saving in salaries rumoured to be in the region of £3 million per annum.
Sources also have implied that something out of the ordinary had taken place in respect to nominated directors stating that a relative of a director had been appointed as a company director, the inference being that this was to make the company look more independent on paper.
Of course with no comment from Connect Distribution we cannot attest to the accuracy of comments made by third parties.
It is true that Connect run many, many sites for other busiensses, effectively allowing an online (or offline retailer with a web presence) to sell from a huge catalogue of spares and accessories without have to have much to do with the actual sale, shipping or responsibility as a retailer as the customer is not actually buying from who they think that they are. Connect runs spares websites for the likes of B&Q, Washerhelp, most any spares website you see that starts with "4" and a host of other sites from manufacturers spares sites to sites for independent traders. There are seemingly hundreds of rebranded sites operated by the one company.
However looking at this acquisition objectively it may actually hold wider implications than those that may be immediately apparent for online spares businesses.
There is a suspicion that the OFT's interest may partially be in the fact that with this acquistion that Connect could hold a dominant market position in relation to appliance spares and that this could place the company also under further scrutiny but also that this may serve as a warning shot to other online retailers that operate multiple websites including the likes of DRL who operate many appliance sales websites on behalf of other retail brands.
Is this the start of the OFT looking into such capers online?
We don't know but we do know that there are a lot of people out there that think they bought goods from a retailer, even many a big high street name, only to find out that in fact they didn't, they bought it from a "partner".
OFT Submission Details
The OFT, as mentinos have request an informal submission over the acquisition and the details of that request and where to send any comments are as follows:
Completed acquisition by Connect Distribution Services Ltd of e-Spares Ltd - issued 1 August 2011
Please send written representations about any competition or public interest issues to:
Fax: 020 7211 8916
Any comments that you may have in relation to the matter must be submitted by 15 August 2011.