Quit Setting Your Money On Fire

Understanding the Importance of Fairness Opinion

by Kathryn Watson

In the world of finance, mergers and acquisitions are a common occurrence. These business deals are vital for the growth and development of companies, and they can help businesses achieve their financial objectives much faster than if they were to rely solely on internal growth. However, a crucial aspect of any M&A deal is the fairness opinion. In this blog post, we'll delve into what a fairness opinion is, its importance, why you need it, and how it comes into play in an M&A transaction.

What is a fairness opinion?

A fairness opinion is a legal document prepared by an independent third-party evaluator that depicts the validity, fairness, and reasonableness of a proposed transaction. It is not mandatory but advisable to seek the opinion of an expert in finance to assess the legitimacy of the transaction based on common financial standards and practices. The evaluator scrutinizes the operational and financial facts to offer an objective assessment that helps all parties involved ensure that the best interests of the shareholders and stakeholders are represented.

Why should you get a fairness opinion?

For starters, a fairness opinion ensures that all stakeholders involved in the M&A transaction understand the financial value of the deal. It offers a robust justification to the decision-makers and enhances transparency for both parties. Besides, it mitigates potential legal risks that could arise as a result of disputes or claims related to financial misrepresentations.

Who can provide a fair opinion?

The evaluator must be an independent third party and have experience in providing financial opinions. Usually, investment banking firms and accounting firms offer the service as it requires a unique set of skills such as valuation, accounting, and financial modeling.

What does a fairness opinion entail?

The document summarises the proposed transaction's commercial features and its critical aspects and analyses whether its terms are fair and reasonable. The contents of the opinion include the specific objectives of the assessment, as well as the methodology that the evaluator used in arriving at their conclusion. The opinion also contains discussions on the market comparison, the fairness of the price, and the transaction's overall financial perspective.

To conclude, a fairness opinion is an essential element of any M&A transaction. It confirms that the transaction price is reasonable and fair and that the shareholders' interests are protected. Hiring an independent and objective evaluator to assess the merits of the deal ensures that all parties involved can make informed and financially sound decisions. If you are planning an M&A transaction soon, your financial advisor may give you more information regarding whether you need a fair opinion or not.

For more info about fairness opinions, contact a local professional.