FTI Capital Advisors, LLC: Fairness Opinion Landscape
A fairness opinion is a financial opinion offered by an advisor to a transaction indicating that from one party’s perspective the transaction is “fair” from a financial point of view as of a specific date under a given set of assumptions. In this context, “fair” references the concept that consideration paid (be it cash, securities, contributed assets or other valued interest) is valued at the same level or less than consideration received. Fairness opinions are typically requested for related-party transactions, merger and acquisition transactions and financing transactions impacting current investors.
While not required by law, boards of directors often obtain fairness opinions to (a) assure minority and control owners that consideration exchanged is fair from a financial point of view and (b) protect board members from liability against possible claims from owners arguing that consideration was not fair. Ideally, fairness opinions are obtained from independent providers to strengthen their objectivity and prospective defensibility. Detailed disclosures may be required if the advisor has a stake in the successful completion of the deal, other significant compensation related to the transaction and/or other material relationships providing compensation. Disclosures also may be required if information has been independently verified; a fairness committee was involved; or if officers, directors, or employees stand to receive compensation relative to the consideration to be paid to shareholders.
Fairness opinions generally are utilized in a number of transactional instances, including but not limited to the following:
- Change of control (e.g., acquisition, merger)
- Related party transactions
- Restructuring and distressed situations
- Divestitures of assets and/or subsidiaries
- Sale of securities
- Going private transactions
- Roll up transactions
- Credit enhancements