Accelerating Post-Merger Integration through Clean Rooms

Utilizing a clean room can provide the acquirer with a head start post-merger integration while offering the seller protection if the deal falls through.

14 January 2016


One of the primary challenges that organizations face as they prepare a plan for post-merger integration (PMI) is that there remains a vast amount of critical information that neither party is willing or can legally share with the other before the deal is officially closed.

While the acquiring company has conducted detailed due diligence on the target, there’s a limit as to what information is made available in the virtual data room. As many of these M&A transactions are conducted through an auction process, it’s pragmatic to err on the side of discretion when sharing information with a broad slice of the market. After all, every potential acquirer that either passes on the opportunity or is eliminated from consideration will be a likely competitor once the deal is closed.

While this secrecy alleviates the seller’s concerns around information security, it’s a cause for consternation to those tasked with leading the potential integration efforts should the deal be consummated. In the eyes of this team, any gaps in due diligence are red flags and are viewed as risks — there’s fear in the unknown.

One tactic that can help fill some of the knowledge gaps is the establishment of a clean room. The clean room serves as a standalone environment where sensitive information is posted by both parties, and the contents are only accessible to a select set of individuals — typically a third-party consultant or legal advisor. Otherwise known as the “clean team,” this group has unfiltered access to pivotal information — information that could influence the probability of a deal being a success or a failure. Obviously the clean team is bound by strict rules of disclosure but after assessing the data through a neutral lens they can make provide guidance to both sides on the likelihood of synergy attainment, and assess whether there are major integration risks.

Clean rooms are often used in deals that are extremely sensitive in nature. For instance, when two dominant players in the same market announce a merger, antitrust concerns are brought to the forefront to ensure that the outcome of the deal does not create a monopoly. As an example, the Hart-Scott-Rodino Antitrust Improvements Act mandates that companies must not complete mergers, acquisitions, or transfers of securities or assets until a filing with the U.S. Federal Trade Commission and Department of Justice is concluded. Even after the preliminary deal announcement, parties can carry out due diligence and plan for PMI, but they must still operate as two separate business units to ensure that business material isn’t mingled.

Utilizing a clean room can be viewed as a win-win — it provides the acquirer with a head start PMI and it offers the seller protection if the deal falls through.

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