A fairness opinion is a statement by an independent, qualified financial advisor that the consideration and financial terms offered in a pending merger, acquisition, sale or other transaction are fair, from a financial point of view, to, typically, the selling company and/or its shareholders, members or partners.
The legal genesis of fairness opinions is the “Business Judgment Rule,” which insulates directors of a corporation, in their role as fiduciaries, from personal liability for their business decisions when there is a presumption that the directors acted on an informed basis, in good faith, in the honest belief that the action taken was in the best interest of the company and its shareholders, and without self-interest. A fairness opinion is evidence of good faith and informed decision-making.
In evaluating the consideration and financial terms of a transaction, the financial advisor considers:
- The value and form of consideration received or paid, and
- The value of the subject business or securities conveyed
Under conditions requiring consideration of “entire fairness”, the financial advisor will additionally consider:
- The process undertaken leading to the proposed transaction,
- Alternatives available that may bring more value than would be realized in the proposed transaction, and
- The financial impact of alternative forms of consideration, transaction structures and deal points.