Confidentiality is paramount during M&A negotiations. Having a prospective buyer sign an NDA is a crucial step sellers should take prior to beginning discussions regarding a potential transaction. Signing an NDA ensures that sensitive information about the target’s business remains confidential. This includes details about employees, financials, key customer and supplier relationships, intellectual property, and other proprietary data. In addition to signing an NDA, sellers can also protect their confidential information during an M&A transaction by taking the following steps:
- Limit the number of individuals who are aware of and involved in the transaction process.
- Create a virtual data room and develop a procedure for how information is to be shared and who will be able to access this information.
- Be conscious of when and where any on-site meetings take place.
What is a clean room in M&A transactions?
A clean room is a virtual data room that contains competitively sensitive financial and strategic information regarding a target. Access to the clean room is tightly controlled through secure login credentials, ensuring that only authorized users (the “clean team”) can view the sensitive documents stored within the clean room. We recommend the use of clean rooms in transactions between competitors in which there are antitrust and other regulatory concerns. The use of a clean room:
- Allows for compliance with regulatory requirements,
- Ensures that a target’s competitively sensitive information is not accessed by individuals who may be involved in competing operational or strategic decision-making activities, and
- Helps balance the competing interests between the buyer’s need to complete a fulsome diligence process and the target’s need to protect its competitively sensitive information.
Given the recent regulatory changes and increased scrutiny by antitrust authorities, it is important to consult legal counsel in the early stages of an M&A transaction to determine whether a clean room is necessary.
Restricting Access to 'Clean Room' Information
There are several ways to ensure that unauthorized individuals who may be involved in competing operational or strategic decision-making activities do not have access to the information in the clean room.
1. Those with access to the clean room sign a separate clean room confidentiality agreement (the “Clean Team NDA”).
- The Clean Team NDA limits access to the information in the clean room to the receiving party’s clean team members.
- The Clean Team NDA also specifically prohibits the receiving party’s clean team from disclosing the confidential information to any other party except other members of the clean team.
- If the Clean Team NDA allows for the disclosure of a summary of the confidential information to the receiving party’s personnel, it should include language requiring a review by antitrust counsel prior to circulation. This review ensures that a summary is appropriate for disclosure to non-clean team personnel or whether the contents should be modified to prevent the disclosure of competitively sensitive information (in which case, antitrust counsel would propose revisions that remove such competitively sensitive information).
2. Permission to download documents in the clean room could be turned off, and the documents could be set to view only.
3. The documents in the clean room could be watermarked with language indicating its highly confidential nature and prohibition of distribution.