State of Transaction Opinions

Optimizing Opinion Defensibility

Corporate Finance/Restructuring

November 17, 2014

blue shield T he State of Transaction Opinions Report, written by FTI Capital Advisors, LLC (“FTICA”), presents the results of a survey covering the effectiveness of fairness and solvency opinions in defending boards of directors in a post-financial crisis transaction environment. Working in conjunction with the FTI Consulting Strategic Communications segment, more than 150 lawyers, senior corporate executives and private equity and hedge fund practitioners were engaged in September 2014 to share their views on the topics ranging from use of solvency and fairness opinions to independence and provider effectiveness. Participation in the polling was managed on an anonymous basis through an online format that facilitates objective feedback. 

Key Findings:

  • The majority of respondents indicated that fairness and solvency opinions were frequently or occasionally used to defend boards of directors (“Boards”) in a wide variety of transactions.
  • More than seven times as many respondents believe that independent fairness opinions are very effective in defending board decisions in subsequent litigation than fairness opinions provided by investment banks involved in the underlying transaction.
  • Over 60 percent of respondents indicated that there has been an increased preference for independent fairness opinions since 2008. This finding is consistent with increased regulatory oversight of Boards following the 2008 financial crisis. Nonetheless a recent study conducted by FTICA of 50 large mergers and acquisitions (M&A) transactions between 2009 and 2012 indicated that in only 9 percent of these cases were fairness opinions provided by an independent advisor. Conversely, 91 percent were provided by an investment bank that was receiving consideration for services other than the fairness opinions provided.
  • Greater than 85 percent of respondents believe that fairness and solvency opinions are more defensible if such opinions are rendered by providers possessing strong industry experience.
  • 82 percent of respondents believe that unsupportable management forecasts underlying fairness and solvency opinions are best addressed by opinion providers that request management to adjust such forecasts. Notwithstanding that response, nearly one-half of respondents believe that actual teams underlying fairness and solvency opinions are largely comprised of industry generalists, calling into question the board defense effectiveness of such advisors’ forecast change requests.
  • Lastly, 73 percent and 90 percent of respondents believe that fairness and solvency opinions, respectively, are more effective at defending Boards when opinion providers are hired at an early stage in a transaction (e.g., before forecasts and deal terms are finalized).

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