A clean room is a restricted data room to share due diligence information without compromising competition laws or revealing trade secrets. Access to the clean room is limited to a small group of people who act as advisors to the potential buyer.
It’s an invaluable tool for the clean team, usually consisting of the data room administrator and buy-side consultants. They work under strict protocols designed to safeguard data such as trade secrets or any information that could lead to unwanted transparency or unfair advantage should the deal fail to close. Each party can walk away without compromising their position if the agreement fails.
Notably, a clean room also ensures dealmakers comply with antitrust regulations, such as the European Union’s Competition Policy, which legislates against cartels, price-fixing amongst competitors, and any transaction that may lead to market abuse. Revealing competitively sensitive information too soon in the deal process can lead to additional scrutiny from competition regulators and jeopardise deal outcomes.
Since the clean team represents only a small number of the broader merger and acquisition (M&A) team, its members provide the client with a redacted and aggregated report from the available information, ensuring confidentiality is maintained. However, the buyer still has sufficient insights to make informed decisions.
Ultimately, clean room information can make or break a transaction without compromising either party's position. Exploring potential synergies while remaining in competition until the deal gets over the line is fundamental to how a clean room benefits both parties.
The short answer is as few people as necessary. Generally, clean teams consist of personnel who do not actively decide the deal's outcome or, indeed, in competitive activities such as sales or marketing. Instead, external consultants such as legal counsel, accountants, financial advisors, or business consultants typically represent the interests of their clients on the clean team.
The stakes are high for corporate deals, and with the pressure to move to the next stage of an agreement (or abandon it altogether) omnipresent, clean rooms can help optimise the early effort involved in determining whether the deal has the potential needed.
Clean rooms can help accelerate the early investigative stage of a deal, and with deal activity on the up in the year ahead, predictions are that speed will be the name of the game more than ever before. Dealmakers must remain agile, equipping themselves with tools that ease increasingly complex negotiations, regulations, and data management.
This demand for speed is further complicated by the evolving challenge of protecting critical information and its timely delivery. Clean rooms help simplify these aspects with advanced security features and limit access to a smaller subset of data room users.
For those concerned that a clean room may add an extra step in the due diligence process, consulting firm EY argues that its experience shows the reverse. Clean rooms for due diligence create synergies and time savings overall.
EY underlines a clean room’s ability to ‘increase synergy potential’, highlighting that deal value can be accelerated by at least 90 days. This is achieved through an aligned view of critical success factors, including supply chain efficiencies, customer base value, and product range synergies to unlock hidden opportunities sooner.
Since a clean room uses advanced technology to optimise data management and evaluation, EY also highlights its ability to unlock hidden trends and ensure robust interrogation of the information provided. And since the clean team is independent of the decision-makers in the deal process, a clean room helps ensure objectivity and expertise from a team of external advisors experienced in working across a broad spectrum of transactions.
Information considered so sensitive it requires a clean room for due diligence varies according to organisational type and sector. However, international law firm Allen & Overy cites the following as typical:
This list effectively represents information that somebody could use for competitive advantage. Therefore, a good rule of thumb is: If you weren’t exploring a deal with a competitor, would it be detrimental to your business and/or violate antitrust regulations in your region if they had access to the information concerned?
Document management and data security are paramount for business owners and their consultants. While virtual data rooms are at the heart of every deal, increasingly clean rooms for due diligence create an indispensable layer of additional reassurance. Furthermore, using a clean room helps business owners and their advisors instil best practices for compliance with antitrust laws.
Ultimately, the end goal is informed decision-making without compromising confidentiality, and a clean room for due diligence equips the deal team to reach their goals smoothly and securely. By accelerating the early stages of the process, clean rooms help unlock hidden opportunities as much as they can any critical deal-breakers. Controlled transparency, enhanced security, and efficient decision-making are the foundational benefits of clean rooms for due diligence and deals of every type and size.
Admincontrol Contact us to learn more or request a demo.
You might also find our practical guide to due diligence success helpful.