Where to Find Fairness Opinions for Corporate Transactions

A fairness opinion is an independent evaluation of the financial terms of a corporate transaction. Prepared by a financial advisory firm, it provides an objective assessment to help stakeholders understand if a proposed deal is financially fair. This opinion offers due diligence and supports decision-making for boards of directors and shareholders in complex financial situations.

Understanding Fairness Opinions

A fairness opinion is a formal report, prepared by an investment bank or financial advisor, that assesses the financial fairness of a proposed transaction. It evaluates whether the price offered or received in a merger, acquisition, or other significant deal is reasonable for the shareholders involved. The opinion is not a recommendation to proceed with the transaction, nor does it comment on the overall strategic merits or business rationale of the deal.

Financial advisory firms, investment banks, independent business appraisers, and consulting firms commonly issue fairness opinions. These professionals are selected for their expertise in valuation methodologies and experience with similar corporate transactions. The concept of “fairness” is strictly financial, evaluating deal terms against market standards and valuation metrics as of a specific date. It does not consider strategic implications or whether the transaction is the best possible option.

Issuers undertake a comprehensive financial analysis, reviewing financial data, market conditions, and comparable transactions. This rigorous process helps ensure the opinion is based on a detailed and objective review. The opinion mitigates potential conflicts of interest and provides an informed basis for decision-makers.

Situations Requiring Fairness Opinions

Fairness opinions are sought in corporate transactions involving a change of control or potential conflicts of interest. These opinions are obtained in mergers and acquisitions, significant asset sales, and management buyouts. They are also advisable for related-party transactions, where one party may have an existing relationship with the company, and in going-private transactions.

While not mandated by law, fairness opinions are considered a best practice, especially for public companies. Boards of directors seek these opinions to demonstrate they have fulfilled their fiduciary duties to shareholders by acting with due care and making informed decisions. The opinion provides independent validation, which can help protect board members from potential shareholder lawsuits alleging a breach of fiduciary duty.

For management buyouts or transactions involving controlling shareholders, fairness opinions are important due to the potential for conflicts of interest. The opinion helps assure that the terms are fair to all shareholders, including minority shareholders. A fairness opinion can lend credibility and transparency to such deals, reducing the likelihood of disputes among stakeholders.

Public Sources of Fairness Opinions

Fairness opinions, particularly for publicly traded companies, are found within regulatory filings with the U.S. Securities and Exchange Commission (SEC). When public companies engage in transactions, they are required to disclose certain information to the SEC. These disclosures often include or reference fairness opinions.

Proxy statements, such as Schedule 14A, are a common place to find fairness opinions. These documents are distributed to shareholders to solicit their votes on proposed corporate actions. Registration statements, like Form S-4, filed when a company issues new securities, may also contain or refer to fairness opinions.

The SEC’s EDGAR database is the primary public repository for these filings. Users can search this database by company name, filing type, or date to locate relevant documents. While the opinion itself might be an exhibit, its core conclusions and supporting analysis are often discussed within the main body of the proxy or registration statement, providing insight into the financial assessment.

Engaging a Fairness Opinion Provider

When a company obtains a fairness opinion, the process begins with selecting an independent financial advisor. This selection is crucial, as the opinion’s credibility relies heavily on the provider’s independence and expertise. Boards of directors, or special committees, typically lead this selection process to ensure objectivity.

Key considerations when choosing a provider include experience with similar transaction types and industries, reputation, and valuation capabilities. It is important to select a firm that is independent and does not have conflicts of interest, such as advising on other aspects of the same transaction or having fees contingent on the deal’s completion. A fixed-fee arrangement for the fairness opinion is preferred to reinforce independence.

Once engaged, the financial advisor undertakes a detailed due diligence process, reviewing financial projections, market data, and transaction terms. They perform various valuation analyses, including comparable company analysis, precedent transactions, and discounted cash flow models. The advisor then presents their findings and opinion to the board or committee, culminating in a formal fairness opinion letter.