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Wondering what a fairness opinion is or when you should seek one out? If your organization is considering a merger, acquisition, or disposition, the time is now.
A fairness opinion states whether a transaction is fair from a financial point of view to the company and its shareholders. An organization’s board of directors or corporate executives should move forward in seeking a fairness opinion if facing one of these situations:
- Synergistic mergers or acquisitions
- Tender offers including leveraged buyout (LBO), management buyout (MBO), or another going private transaction
- Large block stock purchases; private placements; down-round financings
- Related party transactions; Transactions with competing offers; Transactions restricted by a bond indenture
- Dividend recapitalizations; Reorganizations; Hostile takeovers
- Some bond indentures
When seeking a fairness opinion, the price, terms of the sale, and the market rate for similar transactions are evaluated by a neutral party. During the analysis, advisors will look at the terms of the sale from the perspective of investors. Fairness opinions may be prepared throughout negotiation phases between sellers and buyers.
Most recognize the importance of getting a fairness opinion during a hostile takeover. But it’s also essential to get one during a friendly transaction to help make critical decisions, enhance communication, and provide protection against any risks that may arise after a deal is made.
Here are three key reasons you should get a fairness opinion:
- Improved decision making – As part of a fairness opinion, organizations can gain insight into details that might otherwise be overlooked. When developing a fairness opinion, an independent, third-party valuation and advisory firm reviews all documentation and factors that contribute to developing the value of the organization. The advisory firm may also conduct a thorough examination of the organization that is leading the purchase. Making sure everyone has the necessary information helps to ensure better decision-making by all parties.
- Risk protection – Beyond a general legal consulting arrangement, an independent fairness opinion can help provide added protection. In some situations, shareholders may file a lawsuit if there is dissatisfaction concerning the deal. In these situations, the fairness opinion can help demonstrate the board of directors acted in good faith.
- Enhanced communication – A fairness opinion can help demonstrate to shareholders and external stakeholders that board members are exercising prudence and care when contemplating a transaction. A third-party evaluation helps demonstrate all options were evaluated and the best terms were achieved.
If you need help understanding if a fairness opinion is suitable for your situation, VRC can help. We’ve issued over 1,000 fairness, solvency, and capital adequacy opinions for transactions ranging from $10 million to $10 billion in market capitalization. We invite you to review a representative compilation of our recent opinion engagements. Then, contact us to start working with us today.
More Perspectives: Fairness Opinions
Receiving Dependable Fairness Opinions
Boards of directors can improve the likelihood of receiving a more defendable fairness opinion by making specific inquiries of their opinion provider.
How to Avoid Conflicts of Interest When Seeking an Opinion Provider
Fairness opinions provide substantial benefits – if the opinion process is performed correctly.
We are proud to share a select list of recently completed engagements and thank our clients for allowing us to serve their needs.
Services: Fairness Opinion Practice Group
Learn more about the breadth and depth of services we provide to support the financial fairness of corporate transactions.