Benefits of a Clean Room in Mergers and Acquisitions

In the United States, there is $3.3 trillion worth of deals generated from Mergers and Acquisitions (M&A)

Benefits of a Clean Room in Mergers and Acquisitions

In the United States, there is $3.3 trillion worth of deals generated from Mergers and Acquisitions (M&A). M&A deals entail a complex process that involves an exchange of critical information between the buyer and seller.

This information contains financial statements, business systems, and human resource profiles that must be held in the utmost secrecy by both parties until the deal is final. Virtual Data Rooms are an excellent way to store and control data. Its cloud-based storage can be accessed only by key people involved in the transaction.

What is a Clean Room?

A clean room is for highly confidential information. It is within the Virtual Data Room. It is commonly used for instances wherein a selling party would not yet want to share trade secrets until the conclusion of the deal.

Antitrust laws also dictate that in unsuccessful deals, parties may continue with their respective businesses as if the due diligence did not take place. A clean room secures information until further notice. It protects against price-fixing and the possibility of a monopoly, especially when two players from the same market are involved.

Who are the Clean Team?

A clean team is composed of the data room’s administrator, a third-party consultant, and advisors from the buying team. Team members must follow strict disclosure rules and maintain a neutral stance on the facts presented within the deal.

How Can Businesses Benefit from Clean Rooms?

1.      It Can Save Money

Both parties can continue with their businesses while a third-party expert performs due diligence and assessment. Thus, income-generating activities will still bring in money for the companies. The deal can take place without fear of any outside interference. It results in an unbiased contract that will be beneficial for everyone involved.

2.      It Can Ensure Legal Compliance

The antitrust law requires buyers and sellers involved to submit information about their respective companies to the Department of Justice’s Antitrust Division. Each company’s data can be reviewed, with both parties having no access to each other’s classified information.

3.      It Can Contribute to the Success of Post-Merger Integration (PMI)

A clean room is used to share pertinent details needed for Post-Merger Integration. It is also used to gather data to draft contracts and future policies in anticipation of a successful transaction.  The gears for integration are churning while the buyer and seller are doing their due diligence. When the deal closes, a PMI is already in place. It saves valuable time, and the merger can continue to do business without a gap in its operations.

4.      It Can Identify Additional Opportunities for Improvement

Third-party experts on information technology, human resources, and finance can study data provided by both parties within the clean room. After the merger, they can design new processes and systems.

5.      It Can Provide Unbiased Solutions to Organizational Problems

Since a third-party can view problems from the lens of impartiality through a clean room, consultants can draft solutions that will benefit both parties. Buyers and sellers can have peace of mind knowing that both of their sides were evaluated and considered.

M&A undergoes critical and sensitive processes. A clean room provides a secure platform that will ensure a smooth and successful transaction.

Updated Date: 21 Ekim 2019, 16:47

John Thunberbold

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