Clean Rooms in due diligence on the up

Companies have security increasingly higher on the agenda when they are planning M&A transactions these days. We are seeing a greater emphasis on solutions that support the security aspects of the process, including Clean Rooms, which are used in three times as many new processes than a year ago.

15.November 2022
Written by Mari Nygaard

One trend we have observed at Admincontrol in recent years is that companies of all sizes have started to use of data rooms when preparing a sale, and especially when it is time to perform a due diligence. Previously, this would typically be the case only for the largest transactions, but now even small companies have come to understand the importance of SECURITY and CONTROL around transactions.

One clear sign that companies are becoming more security-focused is the increase in the use of Clean Rooms, sometimes also known as black rooms or white boxes, which are essentially data rooms within data rooms, that are used to share sensitive information under tight access restrictions.  In the last year alone, Admincontrol tripled the sales of Clean Rooms.

The two most important reasons to use a Clean Room are:

  1. You may have trade secrets that you are simply not willing to share until the deal is closed.
  2. Furthermore, antitrust laws prevent you from sharing information which could potentially lead to price fixing or unwanted transparency. The general rule is that the parties should be able to carry on as before if a transaction does not take place as planned.

Benefits in M&As between competitors

“If you are planning a transaction with a competitor, you cannot share all the information between you, since this could have the effect of distorting competition. This is where the Clean Room comes in. It allows you to share sensitive information with a limited subset of the data room users”, explains Head of Virtual Data Rooms, Mari Nygård.

The Clean Room is typically accessed only by the data room`s administrator and a few of your buyer’s consultant – aka the Clean Team.

After reviewing the information in the Clean Room, the Clean Team presents their client with an aggregated report which could “make or break” the transaction. With the knowledge of both the target and the potential buyers the Clean Team can make a report that will help the bidder make informed decisions without knowing all the details.

Security on the top of the agenda

In recent years there has been a big increase in the use of Clean Rooms. Nygård explains that she has noticed that companies generally now have more awareness of who they share information with.

“Across all industries, they are concerned about how to share sensitive and personal data swiftly, simply and securely.  They are also concerned about being GDPR-compliant when performing a transaction. I think GDPR has placed security firmly at the top of the agenda for many companies. There is no room for error. The use of free platforms for sharing information is in decline.”

The head of Admincontrol’s data room team also adds that more consultants and lawyers are beginning to appreciate the importance of using secure platforms for executing transactions, and this may be one of the reasons behind the large increase in sales of Clean Rooms.

“We can see that security is becoming increasingly more prominent when companies are planning new transactions”, concludes Nygård.