The Journal sat down with Jeff Phillips, a Managing Director in Stout’s Valuation Advisory group and head of the firm’s Transaction Opinions practice, to get the inside scoop into the world of transaction opinions, the role of a fairness opinion in a transaction, and the importance of hiring an independent and capable financial advisor.
Our main role is to provide our clients with independent financial advice, and ultimately an opinion, regarding a potential transaction that they are being asked to consider. While the formal opinion is a two- to four-page letter indicating whether the transaction is fair from a financial point of view, the process to arrive at the conclusion is quite substantial and often complex. Generally, our analysis consists of not only a valuation (including full due diligence on the underlying business), but also a review of the transaction’s financial structure, the type and timing of the deal, and the financial and tax consequences of the transaction. In short, we help members of a company’s board of directors determine if certain elements (e.g. consideration paid or received) of a transaction are fair from a financial perspective.
Although fairness opinions are only one input used by board members and other stakeholders when analyzing a transaction, they are considered an essential part of the process. Their purpose is twofold: 1) to provide an objective standard against which the financial aspects of a transaction can be measured, and 2) to insulate board members from a subsequent “breach of fiduciary duty” claim.
Fairness opinions are routinely used in mergers and acquisitions and similar financial transactions, serving as a form of defense and legal protection for the boards of directors on both sides of these transactions. That said, fairness opinions are not without controversy.
Often, fairness opinions are:
A transaction opinion advisor should:
As one of the largest valuation practices in the country, Stout leverages its considerable investment banking and valuation experience to assist clients in making sound decisions with respect to a transaction and navigating through the “noise” to provide timely, sophisticated, and reliable advice.
Our analytical approach incorporates: