Clean rooms and clean teams to accelerate synergy capture
Find the value without running afoul of anti-trust rules
The stakes are high in life sciences mergers and acquisitions (M&A). To justify the record premiums on M&A deals, targets and acquirers need to work together to accelerate synergy capture. But sharing competitive information in the wrong way at the wrong time is against the law. Clean rooms and clean teams front-load synergy capture to drive top-line growth and exceed investor expectations.
- Clean rooms: Synergy capture in life sciences M&A
- What is a clean room, and when can it be used in life sciences M&A?
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Clean rooms: Synergy capture in life sciences M&A
With record deal premiums in life sciences M&A deals, cost and scale synergies are no longer enough for investors. Top-line growth expectations are becoming the new “table stakes.” Yet despite this new scrutiny and focus on revenue, it remains incredibly difficult for life sciences companies to announce revenue synergies. And too often, they fall behind in their post-merger integration revenue targets.
One of the main factors that discourages companies from announcing revenue synergies is that the investor community tends to significantly discount these synergies in their financial models. That means companies lack the incentive to dedicate time to identify revenue synergies and provide guidance to the street.
These factors should not deter companies from having internal revenue synergy estimates. Life science companies need to push the envelope on top-line synergies and find every way possible to start executing on the top-line immediately after close and be able to deliver on their growth projections.
Clean rooms, or clean teams, are an often underutilized resource that can be extremely helpful in such scenarios because they help perform the top-line analysis after the deal announcement but far ahead of close. With only a small investment of time, effort, and cost, companies can use the clean room construct to analyze competitively sensitive data and expedite planning to capture the available revenue upside of M&A deals.
What is a clean room, and when can it be used in life sciences M&A?
A clean room or clean team is a secure environment in which consultants, designated employees, or both can receive competitively sensitive information while continuing to adhere to the antitrust laws. The information can then be leveraged to perform analysis and identify revenue synergy opportunities that could be realized expeditiously post transaction close.
The construct is relatively easy to implement and helps overcome any concerns relating to legal regulations. At the same time, clean rooms or clean teams are frequently staffed by consultants helping employees to continue to focus on their daily jobs, and for a small investment, the returns post close could be significant.
Based on our experience, we have found them to be particularly relevant in transactions where there is:
- High synergy expectations and focus
- Short period of time to achieve mandated synergies
- Significant time to legal close
- Low level of trust between organizations
- High level of customer/geographic overlap
- High level of product/portfolio overlap