Strategic Use of Clean Rooms and Clean Teams
Capturing the value of a complex merger deal is never easy, but for such value to be captured quickly and well, integration plans need to be completed before the deal is closed. Unfortunately, regulations in the United States and other jurisdictions do not allow sharing competitively sensitive information prior to deal consummation, which is critical to a rapid and well-thought-out integration plan.
Over the past few years, however, more businesses are making very effective use of the period between regulatory filing and the close of the deal to organize and leverage “clean rooms” as a way to bring together data from all parties in a physical or virtual repository. They are then deploying “clean teams” that are charged with accelerating the speed and quality of integration planning. These teams have access to all organizational data in ways that are fully compliant with antitrust regulations in the Hart-Scott-Rodino Act of 1976.
When correctly deployed, clean rooms and clean teams will reduce transaction costs significantly, quickly identify increased revenue opportunities, realize cost synergies, increase shareholder confidence, and streamline merger processes for employees and systems.
Challenges and Opportunities
There are several key issues organizations must consider before deploying a clean rooms/clean teams process:
- Establishing a clean room environment – Depending on factors such as the size of the deal and the regulatory environment, a clean room can either be a virtual or actual space, and involve just a few people or multiple teams with multiple locations. Organizations must consider differences in the size of clean rooms, depending on the desired level of security.
- Staffing a clean team – Ideally, the parties would staff the clean team with their best and brightest managers and employees – those who know and understand their firms best and know how to get the needed data. But neither company can afford to lose its top people to months of confidential clean team activity. More importantly, should the deal fall apart, employees who worked on the clean team would not be able to work in their relevant business areas for a meaningful period of time.
Because of this, most companies opt to staff their clean teams with independent third parties. Use of third-party advisors in a clean room eliminates the actual or perceived risk of anti-competitive behavior that precludes direct sharing of information between the companies involved in a merger
- Structuring of the clean teams reporting relationship – Structuring the clean team reporting channels between the teams and each organization requires great care. Clean teams typically report directly to a steering committee staffed by the leaders of the functional areas being analyzed. This connection is crucial to ensure the clean team maintains its alignment with the strategic direction and operating requirements of the new entity.
- Focusing on the greatest integration value opportunities – Organizations should make sure their third-party advisors are able to prioritize post-merger synergy opportunities based on the value they create, not just the speed at which the organizations can achieve full integration. They should prioritize post-merger activities based on value, the time and cost needed to implement, and the risk involved in implementing the synergy. For example, if the greatest value in a merger is rationalization of key supply chain/strategic sourcing opportunities, advisors should help identify the activities that will ensure the most rapid transfer of vendor information and development of integrated strategic sourcing plans.
Our Point of View
Many of the processes that typically contribute the most to deal synergies are also ones that typically are subject to the scrutiny of antitrust laws against “gun jumping” and/or pre-merger coordination on customer market overlap or pricing. These include core areas such as:
- Revenue – Mergers are public events that, when announced, can create uncertainty with key customers. Focusing on growth and new market potential from a combined entity, strong integration planning keeps customer satisfaction at the forefront. A clean room process allows the parties to analyze under-penetrated markets and the likely financial impact of new go-to-market approaches/synergies without ever disclosing customer or brand-specific details.
- Procurement – Procurement is the source of significant cost synergies in a merger. Determining purchasing synergies by analyzing confidential vendor contracts can result in savings much sooner after closing. Not only can analysis be completed during the clean room phase, but in the case of price differentials, actual letters to suppliers can be drafted in advance – all without compromising proprietary information between organizations.
- Information technology – The integration of IT departments often takes the longest to plan and realize. Companies can accelerate this timeframe by leveraging clean rooms and teams during the downtime between the announcement and closing. This provides the opportunity to have an IT integration plan in place, ready to execute on day one following the closure of the deal while still maintaining required confidentiality measures.
The clean room concept applied to IT departments should work in parallel with any other clean rooms, such as sales, supply chain, procurement, human resources, operations and other key business units given the sensitive nature of data within IT systems and databases.
In short, a clean room process gives both companies in a merger or acquisition the best of both worlds. It minimizes the risk of a broken deal by keeping critical data under strict control. When a deal is closed, however, it can capture enormous value with an accelerated integration process, fewer lost customers and additional synergies.
How We Help Companies Succeed
Our structure allows us to respond quickly to your needs on a global basis with cross-disciplined teams that bring broad perspectives and deep expertise capable of leading the transaction PMO and work streams and diving deep into a variety of business and regulatory issues. With our structure, we are uniquely able to deploy a flexible delivery model that adapts to the constantly changing fixed and variable resourcing needs of each transaction.
We have assisted some of the world’s largest organizations with some of the biggest transactions in history, providing services across a range of operations and assets. We focus on key risk areas like no other partner with whom you will work. We have proven project management tools and techniques that will help fully capture the targeted results of your deal.
Protiviti was engaged by a Top 5 U.S. bank to define and execute more than two dozen integration projects, from planning to integration completion. Our teams spanned business and IT across multiple products, geographies and disciplines. Initially, Protiviti focused on defining and operationalizing target operating models so the vision of the integration could be road-mapped, issues defined, implementation plans built and modified, and risks monitored and acted upon. Our teams consisted of advanced program management specialists as well as deep industry and technology experts.
We led engagements with regard to charter consolidation, ERP conversions, new infrastructure technology builds in partnership with pure technology firms, architecture, and operations. Within operations, we led or assisted with the integration across sales and acceptance, investment platform uplifts, revenue and fees, and account migration, as well as functional activities with operations such as technology, communications, and legal, risk and compliance.
Our teams covered a variety of additional integration areas, including readiness assessments, customer selection for conversion cycles, information security strategy, policy and assessments, upstream/downstream application impacts, and demand management protocols.
“There were many moving parts and two companies coming together that needed the experience and help you provided. I was personally very grateful for your ability to define the business need AND truly understand how to drive the deliverables to completion. I was impressed with your professionalism and overall “can do” attitude.”
– Product Lead, Senior Vice President