Fairness Opinion

A Fairness Opinion is a report produced by a qualified investment banker or consultant that assesses the fairness of the prices offered at the time of an acquisition, acquisition or merger. Opinions relate to the price offered by the buyer and the rationality of the terms for the shareholders of the company. Fairness Opinion is used in both friendly and hostile transactions. Fair Opinion is a valuation service that applies to all or part of a company and provides guidance to trustees involved in a merger, acquisition, acquisition, dispute transaction, or capital increase.

Every day, members of the board make decisions that are subject to thorough external scrutiny. To serve the best interests of shareholders, the board should consider complex corporate transactions in situations that are often less than ideal. Conflicts between investment bankers with accidental fee arrangements, transactions with related parties, and lack of clearing mechanisms in certain transactions complicate the board's decision-making process. Independent fairness analysis and opinion helps board members evaluate corporate transactions and fulfil fiduciary duty.

Companies need to get a fair opinion on all kinds of transactions. The purpose is to guarantee a realistic valuation to the seller or to prove a reasonable purchase price for the acquiring company. Fair opinion is considered a common practice that can protect trustees from the risk of reputation in the event of a dispute.

The Importance of a Fairness Opinion is that it is intended to show shareholders that management or directors have acted in the best interests of shareholders and that the reports by the independent consultants with which the company is engaged confirm that the terms were fair. In the absence of a fair opinion, some shareholders may be dissatisfied with the value agreed between the seller and the buyer. In a situation where dissatisfied shareholders file a lawsuit against the company, the directors of the company can use the fair opinion report to show that they acted in good faith during the transaction.

Some of the concerns that arise when preparing a report of fair opinion, are, the cost charged by the investment adviser for the service, Expert opinions are created during ongoing negotiations between buyers and sellers, putting consultants under considerable time pressure to complete their impartiality opinions, Preparation also requires advanced skills to identify all areas of the contract that require stakeholder attention. The consultant will charge an additional fee for the service for a limited time, the required skills, and the associated risks. The report may be used in a court of law and, therefore, the analyst must provide a high degree of accuracy and attention to detail. Sometimes, Investment banks may be involved in both reporting and acquisition transactions. Investment banks need to consider to form a fair opinion as to whether the agreed price is fair to the shareholders of the company and also to the buyer.

When developing a report, the fairness opinion service provider must conduct due diligence to ensure that they have all necessary information regarding the selling company and also the buyer company. They must visit the business premises of the selling company and buying company and review documentation, examine dividend paying history, past financial performance, factors affecting revenues, that will help in developing an opinion about the value of the selling company.

When the consultant completes the review and prepares a report of opinion, the report is forwarded to the board for review. Management's discussion of each element identified in the Fair Report is summarized in the Memorandum of Understanding. Consultants can participate in these discussions and answer any concerns or questions management may have regarding reporting.