What to Consider When Selecting a Fairness Opinion Provider

January 13, 2020

When seeking a fairness opinion provider, boards of directors must execute due diligence to meet their fiduciary responsibilities. Professionals require a fairness opinion when evaluating mergers, takeovers, acquisitions and other purchases that depend on objective opinions for proposed prices and options. Before selecting a fairness opinion provider, consider the following criteria and analysis.

What is a Fairness Opinion?

The purpose of the fairness opinion is to provide guidance for the parties involved in the transaction, ensuring transparency on all fronts. The collected data and detailed analysis can reduce risks and assist in communication among all parties involved. 

An opinion’s main objective is to reduce risks that are associated with the type of purchase, such as a merger, acquisition, buy-back or private transaction. The objective analysis examines the benefits, terms of agreement and price offering. 

When is a Fairness Opinion Required? 

Businesses have numerous reasons why they may require a fairness and valuation opinion. An opinion may be required if there is a plan to restructure, pursue a workout or conduct bankruptcy proceedings. Corporations may also need them for private equity funds for portfolio investments, minority interest buyouts and shareholder disputes. 

Planning for employee stock ownership, estate and gift tax, or estate tax return preparation can also depend on fairness opinions. Family proceedings such as divorce or family limited partnerships may necessitate an analysis due to the objectiveness necessary to successfully make an equitable decision for all parties involved. 

How to Evaluate the Fairness Opinion Providers

An opinion provider must have extensive practical knowledge of the type of financial transaction, such as merger, acquisition or sale, to develop an analysis that is equitable to all parties interested. When a business selects a provider, it is important to consider the provider’s experience with the entity’s own industry — auto, medical, legal, etc. The business must also ensure that there are no conflicts of interest involved.

An optimal fairness opinion provider should have a breadth of experience, not only in opinions, but also in performing additional analyses such as market sizing, contingent consideration valuation, synergy and cyber risk assessment, as well as quantification of tax attributes and ramifications. They require a comprehensive approach to viewing a deal holistically and objectively to give board members better insight to make a decision. 

From a financial point of view, it is a best practice that the opinion protects the shareholders’ interests instead of management’s interests as these are not often completely aligned and the transaction at hand generally affects shareholders’ interests more than management’s. 

Scott-Macon Fairness Opinions

Scott-Macon professionals are highly skilled with extensive expertise in the valuation of privately held and publicly traded companies, business units, minority ownership positions and partnership units. Our advisors’ valuation studies have been utilized by numerous boards of directors, company owners, management teams and trustees-in-bankruptcy for a variety of applications. These confidential valuations have finalized various transactions, mergers and acquisitions. 

Contact us about getting a fairness opinion for your business transaction.