A fairness opinion is a letter generally to the board of directors summarizing an analysis prepared by an investment bank or independent third party that indicates whether certain financial elements of a transaction, such as price, are fair to a specific constituent from a financial point of view. While not required by law, fairness opinions are commonly used in M&A transactions to assist the board, a special committee of the board or other fiduciaries in assessing the financial terms of a transaction.
In recent years, fairness opinions have played an increasingly important role in mergers and acquisitions (M&A) and related corporate transactions, providing critical information and helping to support a board’s decision to move forward (or not to move forward) with a transaction. As a result, the number and type of providers offering financial opinions has also grown significantly to include a broad range of investment banks, independent business appraisers, accounting firms, and consulting firms. However, sorting through the range of providers is only one of many factors contributing to the challenges companies and their boards face in selecting a fairness opinion provider. Varying levels of experience and expertise as well as the potential for conflicts of interest make it imperative for board members evaluating transactions to conduct thorough due diligence when choosing a provider.
When selecting a firm to provide the fairness opinion, boards should consider many of the same factors they consider when hiring a deal advisor, including choosing a firm that has a deep understanding of the M&A process. Other considerations include industry and sector expertise; valuation capabilities; the credentials and experience of key professionals; the existence of conflicts; a long track record of delivering fairness opinions; and a premier reputation in the industry.
This guide provides boards of directors, special committees, and other fiduciaries with the necessary information they need when selecting a fairness opinion provider, including:
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