Fairness opinion is a Financial Advisor’s (Category I Merchant Banker) opinion and an independent objective analysis, from a financial point of view, as to the fairness of the financial terms of a Business Combination or a Corporate Transaction. There are many reasons for fairness opinions, most of which deal with transactions (business combinations) involving publicly listed and closely-held companies.
An independent opinion of fairness relative to the exchange of values can provide substantial support for such transactions. Furthermore, independent fairness opinions are useful as a defense against dissident shareholder claims.
When Fairness Opinion is required?
- When a public company undertakes a Merger of Acquisition exercise.
- When a public company divests one of its divisions.
- When there is a management buyout or take-private (a PE firm acquires the company via a leveraged buyout and turns it private).
- When there is a bankruptcy, liquidation and Corporate Restructuring.
- When there is a hostile takeover – in this case it would be called an “inadequacy opinion” instead and would be used to defend the target by claiming that the offer is not fair.