11.4.1. The Fairness Opinion
A fairness opinion is an analysis of whether a proposed transaction is fair from a purely financial perspective. A fairness opinion does not recommend accepting or rejecting the transaction. It does not evaluate the wisdom of the transaction, whether the proposed transaction represents the best deal that could be made, or even whether the transaction would be legal. It simply gives a thumbs-up or thumbs-down on the narrow issue of the transaction’s financial fairness.
A fairness opinion for an M&A transaction is typically produced either by the investment bank that is already advising the company, or by a neutral third-party investment bank. The intended audience is the company’s board of directors, and often its shareholders also. Besides being a tool for decision-makers whose approval is required before a deal can close, a fairness opinion also helps a board of directors demonstrate that it is acting in shareholders’ best interest, as required by its fiduciary duty.
Fairness opinions are most frequently produced for the seller. If the seller is a public company, a fairness opinion is effectively mandatory thanks to a series of court rulings. A seller that is a private company may seek one as well, especially if there are directors or major shareholders who rema