By Paul B. Finch, MBA | 8/18/2022

A Fairness Opinion can provide important information in a wide variety of financial transactions such as mergers, acquisitions and business privatizations, as well as hostile takeovers and distressed sales. Very succinctly, a Fairness Opinion can be thought of as a second opinion because it addresses the fairness of a proposed equity transaction from a financial perspective, as produced by an independent financial advisor who objectively examines the price, terms and consideration to be received in a given transaction. A Fairness Opinion is a comprehensive examination of a proposed financial transaction and serves to provide assurance to Boards of Directors as well as individual owners of equity.

A Fairness Opinion does not indicate that the transaction price for given shares or units is the best possible price for the buyer or seller, but rather opines that the proposed price is either (i) within the range of possible fair market values; (ii) higher than the range of possible fair market values; or (iii) lower than the range of possible fair market values. A Fairness Opinion may also opine as to the applicability/fairness of any specific discounts or adjustments that may have been applied by a valuation analyst in determining a Conclusion of Value.

A Fairness Opinion from a qualified, independent financial advisor can be a very valuable tool for Boards of Directors seeking to demonstrate that they are acting in the best interests of all shareholders. A Fairness Opinion can provide assurance that a firm’s actions in an equity transaction are fair and reasonable and thus reduce the risk of disagreement among shareholders and possible resultant litigation.

The key factor in a Fairness Opinion is that the financial advisor not only be qualified, but of equal importance, is independent of any proposed transaction. Independence in this context means that the financial advisor is not a banker, broker, dealer nor any other party who has a vested interest in the transaction. Accordingly, any party that would be paid a success fee or would otherwise benefit financially from the completion of a transaction has a conflict of interest and, therefore, should be disqualified from providing a Fairness Opinion.

Fairness Opinions have been widely used for years in market transactions involving publicly traded stocks where the Fairness Opinion is considered a “best practice” by Boards of Directors seeking to avoid claims of breach of their fiduciary duties. That said, Fairness Opinions are generally considered to be underutilized in middle and small market transactions where they can provide the same benefits to these Boards of Directors as that of publicly traded firms by providing assurance that a proposed transaction is fair and reasonable.

Paul B. Finch, MBA, is co-founder and Executive Director for Benchmark Solutions, Inc. and is an accomplished Strategic Financial Advisor. Paul specializes in the areas of Financial Planning and Analysis, Decision Support, Business Valuation as well as M&A Advisory where he provides Fairness Opinion as a part of his practice. You can contact Paul at paul.finch@benchmarksolutions.us.com