Fairness opinions have been around for decades, but their use in business valuation is relatively new. These valuation opinions are not just for big business deals. They can also be used in smaller transactions, such as the sale of a privately held company.
Learn more about fairness opinions and their context in the business world.
What Is a Fairness Opinion?
A fairness opinion is a report by an independent financial advisor that states whether or not a particular financial transaction is fair to the company's shareholders. To give a fairness opinion, the financial advisor analyzes the terms of the transaction and compares them to similar transactions to determine whether or not they are reasonable.
The financial advisor also considers any potential conflicts of interest that may exist in the transaction. Once the financial advisor completes their analysis, they provide a written report to the shareholders that states their opinion on the transaction's fairness.
If the financial advisor believes that the transaction is not fair to the shareholders, they may recommend that the shareholders vote against it. However, it is ultimately up to the shareholders to decide whether or not to proceed with the transaction.
When Would You Need a Fairness Opinion?
You may request a fairness opinion before proceeding with a merger transaction. Fairness opinions can also be provided in other situations, such as when a company wants to diversify its assets.
Also, if your company's shareholders want a change of control, they could ask an independent valuator to provide a fairness opinion. That way, shareholders can know the value of their shares and decide whether to accept the offer.
While fairness opinions are not required by law, they can be extremely helpful in ensuring that all shareholders receive fair value for their shares. In addition, fairness opinions can help provide comfort to shareholders who may be reluctant to approve a transaction.
How Can You Evaluate the Quality of Your Fairness Opinion?
A few key factors can help you assess the standard of your fairness opinion. First, ensure that the opinion is based on a thorough analysis of the relevant market data. This data should be extensive and cover a wide range of market conditions to paint an accurate picture of what fair value for your company would be.
Secondly, the analysis should be performed by experienced professionals who understand valuation methods and principles. Finally, a fairness opinion should be presented clearly and concisely, with all pertinent information easily accessible.
For more information, contact a fairness opinion firm near you.