Corporate Finance / Financial Transactions
A fairness opinion is often requested by a Board of Directors or other fiduciaries to satisfy them that a transaction is fair, from a financial point of view, to a particular party to the transaction. Such fiduciaries might include Trustees (of ESOPs or trusts for the benefit of family members or the yet unborn) or any representative of a constituency looking for documented analysis and protection upon which they may rely. While historically, fairness opinions have been issued by the investment banker(s) involved in the transaction, there is a growing interest by fiduciaries in retaining an expert that is without a financial interest in the transaction and one who can give a truly unbiased opinion. Transactions typically requiring a fairness opinion include divestitures, acquisitions, stock redemptions, spin-offs, recapitalizations, mergers, capital raises and going private transactions, often but not always involving a somewhat less than arms length relationship between the involved parties. The NASD and the Courts have been highlighting the conflicts or potential conflicts of interest on the part of firms rendering fairness opinions. We are beginning to see Boards commissioning an independent fairness opinion as an alternative to or to supplement an opinion rendered by the investment banking advisor to a transaction.
What to Expect
A fairness opinion reflects many aspects of a business valuation. The opinion itself is generally a short summary of the scope of the analysis, materials and management interviews reviewed and relied upon and the conclusion reached – either that the transaction is fair from a financial point of view or that it is not. Typically, a more complete presentation is made to the Board/fiduciary that reviews the thorough analysis performed and provides for questions and explanation.
A Baker-Meekins’ fairness opinion incorporates two major strengths of the firm - thorough and well-reasoned valuation opinions and the presentation of our analysis and findings to our client.