Proposed Acquisition of Mandarin Self Storage Target Companies by StorHub Venture Pte. Ltd.

Reference:

CCCS/400/140/2022/002

Notifying Party:

StorHub Venture Pte. Ltd.

Notifying Date:

14 March 2022

Summary of transaction:

(i)       the names of the merger parties;

The merger parties to the Proposed Transaction (as defined below) are StorHub Venture Pte. Ltd. (“StorHub”), MSS Real Estate Investments I Pte Ltd, and Asia Self Storage Holdco Limited (collectively “MSS” or “Mandarin Self Storage”).

(ii)       a description of the transaction;

On 5 March 2022, StorHub entered into a Sale and Purchase Agreement with MSS, pursuant to which the transaction involves a full acquisition of 100 per cent. of shares in the MSS Target Companies by StorHub (the "Proposed Transaction”). Following the Proposed Transaction, MSS will exit the self-storage industry entirely.

(iii)      a description of the business activities of the merger parties worldwide and in Singapore;

StorHub operates self-storage services in Singapore, China, Hong Kong, Korea, Japan, Malaysia, and Thailand. MSS has no operations outside of Singapore.

(iv)     a description of the overlapping goods or services, including brand names;

The Parties overlap in the supply of self-storage services for personal and business use in Singapore.

(v)      a description of substitute goods or services;

While there may be some substitutability between self-storage services and warehousing services, and self-storage services and storage services provided by removalist companies, the Parties do not consider that there are any services which serve as substitutes to self-storage services.

(vi)     the applicant’s views on:

a. definition of the relevant market(s);

In the Parties’ view, the relevant market is the supply of self-storage services in Singapore.

b. the way in which competition functions in this market;

Competitors in the self-storage market primarily compete on price and quality. For price, self-storage operators differentiate the self-storage services offered in terms of the price structure, long term storage discounts or rent free periods. Self-storage operators also differentiate their services by offering a variety of different types of self-storage units for different purposes, or having additional features such as stronger security systems, transport services, as well as user-friendly booking and payment systems.

Generally, beyond the slight differentiating factors in the types of self-storage services provided, self-storage services are homogeneous and the degree of competition amongst competitors is high.

c. barriers to entry and countervailing buyer power; and

Barriers to entry

The Parties submit that there are no material barriers to entry or expansion in the self-storage market in Singapore. While self-storage operators incur capital expenditure to rent or acquire industrial properties either from JTC or in the private property market, where a new entrant purchases industrial property, a self-storage operator who is exiting the Relevant Market may recover a portion of the capital expenditure initially expended, depending on the tenure remaining on the self-storage operator’s lease with JTC, the prevailing market value of the property, and any relevant terms agreed upon with JTC. The self-storage provider may also recover some costs from selling off the items used in the conversion of the industrial property to a self-storage facility, such as closed-circuit televisions cameras, metal partitions, or air-conditioning units.

Regardless of whether a self-storage operator wishes to utilise JTC property or private property, high property prices as well as a limited availability of suitable properties are a consideration for new entrants or the expansion of existing competitors. However, the costs incurred in relation to such involve either investments in assets (i.e., property acquisition), or operational expenses (i.e., lease costs) – neither of which are sunk cost investments, and would not constitute a material barrier to entry.

Self-storage operators must also abide by certain government regulations relating to statutory land use plans, there is a general availability of land zoned for industrial use. Self-storage operators must also comply with various conditions relating to the use of industrial properties, but such compliance does not incur significant sunk costs for investments.

Ease of switching and countervailing buyer power

There are no significant switching costs involved for customers to switch between self-storage providers, and customers can easily switch between a range of available self-storage providers in the market. Customers can also use more than one self-storage provider for their storage needs.

Generally, customers sign contracts with self-storage providers for a period of one month, and the contract period can subsequently be renewed on a monthly basis. The contracts can also be terminated at no costs with a short notice period of 14 days.

Limited switching costs would be incurred when a customer is required to organise the move of the customers’ stored goods into their new storage unit. This would typically take half a day for the move to be completed. The moving costs that would be incurred by a customer are, on average, the equivalent of 1 to 2 months’ rental for a storage unit of approximately 5.0 m2 to 6.5 m2. However, the Parties note that these moving costs may be offset by discounts offered to new customers by the new self-storage provider.

Self-storage providers are also constrained in their ability to raise prices, as buyers are easily able to compare the self-storage services across a wide range of providers available in the market online.

d. the competitive effects of the merger (non-coordinated, coordinated and/or vertical effects, as relevant).

The parties submit that non-coordinated effects will not arise as a result of the Proposed Transaction in view of the following:

  • the wide range of competitors that currently exist in the Relevant Market to provide self-storage services, which can expand their operations in response to any hypothetical increase in prices or reduction in the quality of self-storage services;
  • the absence of material barriers to entry or expansion in the Relevant Market; and
  • the ability of customers to switch easily between self-storage providers and the strong countervailing buyer power of customers in the Relevant Market which is characterised by excess capacity and the ease by which customers are able to compare offerings across self-storage providers.

    The parties submit that coordinated effects will not arise as a result of the Proposed Transaction in view of the following:
  • the Parties and other competitors will not be able to align their behaviour in the relevant markets. There are numerous competitors in the provision of self-storage services, creating instability and reducing sustainability of coordinated behaviour. Moreover, there is an absence of material barriers to entry in the provision of self-storage services generally, and accordingly high potential for increased competition, which similarly creates disruptive effects and reduces sustainability of any coordinated behaviour;
  • the Parties and other competitors do not have the incentive to maintain coordinated behaviours, as there is no credible deterrent mechanism that can be activated if deviation is detected; and
  • coordinated behaviour is not sustainable in the face of other competitive constraints in the relevant markets.
 Decision: Following its assessment, CCCS has concluded that the Proposed Transaction, if carried into effect, will not infringe the section 54 prohibition of the Competition Act 2004.
Decision Date:

14 November 2022

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The Grounds of Decision will be made available in due course.