The Gym Group merger with Pure Gym stalled by Competition and Markets' Authority

The proposed merger between The Gym Group and Pure Gym has been further delayed, after the Competition and Markets' Authority (CMA) yesterday referred the deal for an in-depth merger investigation. This is the first time the CMA has escalated a deal in this way.

In a news release, the agency said it's concerned that combining the businesses may lead to "higher gym membership prices or a reduction in quality and choice for customers".

The CMA highlights that Pure Gym and The Gym Group are the leading operators of budget gyms nationwide, with over 100 gyms between them and combined revenues of more than £50m. It believes the merger may "substantially lessen competition at both a national level and in 14 local areas," where the merged businesses would have sites near each other. The deadline for the final decision on the merger is 10 December 2014.

Health Club Management editorial director, Liz Terry, who's been analysing the health and fitness industry since 1983, questioned the rationale behind the CMA decision.

"It isn't logical, The Gym Group and Pure Gym's business model depends on the low-cost pricing structure to create a competitive point of difference with other health club operators,” she said.

“If they move their price point – as the CMA fears – they'll come into direct competition with so many other operators that the threat of competitiveness would be completely removed.

"The decision is another example of how government and some UK quangos not only misunderstand the nature of the leisure industries, but also fail to proactively assist business in this sector when it comes to their development. Leisure is a major driver of the UK economy and we'd like to see more being done to support and assist companies in these markets and to contribute to their successes.

“This delay is causing unnecessary hold ups to the companies' expansion plans and is unsettling for all concerned. It's to be hoped the CMA recognises that the low-cost operators are part of the overall health club sector, not an isolated market in their own right."

The Gym Group CEO John Treharne, due to replicate this role at the new company if the merger is approved, was unavailable for comment.

• This merger is not the only recent example of leisure sector expansion plans becoming tangled in red tape. Last month the CEO of Center Parcs, Martin Dalby, called on government to change the UK's planning system to make it more straightforward and to encourage investment and job creation. His comments followed the opening of the latest Center Parcs village in Woburn, Bedfordshire, where the company spent five years just getting the scheme through the planning process – a procedure which involved a full public enquiry and cost £5m.