Fairness Opinions

What is a Fairness Opinion?

A fairness opinion is an independent analysis that assesses whether the financial terms of a proposed transaction are fair — from a financial point of view — to specific stakeholders, most often noncontrolling shareholders, a board of directors or an employee stock ownership plan (ESOP). It is not a valuation in the traditional sense, but rather, a professional opinion that supports good governance and informed decision-making.

Fairness opinions are most commonly used in M&A transactions, especially when potential conflicts of interest are present or when a board or trustee seeks additional insight to assist in demonstrating that financial decisions were made with informed judgment.

Strengthening Your Board and Stakeholders’ Confidence

When a company is involved in a significant transaction, directors, trustees and legal counsel must evaluate the financial terms with care and objectivity. A fairness opinion provides an independent assessment of those terms. A fairness opinion:

• Demonstrates diligence and transparency: A fairness opinion provides third-party analysis that helps demonstrate the board’s diligence and consideration of financial fairness to defined stakeholders, supporting transparency and informed decision-making.
• Enhances stakeholder confidence: An independent assessment offers transparency and reassurance that the financial terms have been objectively evaluated, fostering trust and smoother approvals.
• Mitigates perceived conflicts of interest: In situations where potential or perceived conflicts of interest might arise (e.g., management buyouts, related-party transactions), a fairness opinion provides an objective, third-party perspective, assessing whether the proposed transaction is fair from a financial perspective to the relevant stakeholders identified.
• Supports informed decision-making: Our rigorous analysis offers the board an additional layer of financial insight, enabling more robust and defensible decisions.

Fairness opinions are often requested when a board, trustee or special committee seeks to demonstrate that a transaction is financially fair and that decisions were made with informed judgment. While every deal is unique, fairness opinions are most valuable in situations that carry higher risk, potential conflicts of interest or fiduciary complexity, such as:

• M&As, divestitures or change-of-control transactions
• Related-party transactions involving insiders or controlling shareholders
• Tender offers, management buyouts or leveraged buyouts
• Down-round financing, private placements or rights offerings
• Corporate reorganizations, restructurings or dividend recapitalizations
• Renegotiation of loan covenants or bond-indenture-restricted deals
• Large block stock purchases or continuation vehicle investments
• Transactions involving competing bids or hostile takeovers

An ESOP fairness opinion is a financial assessment that evaluates whether the terms of a transaction are fair to the ESOP and its participants. In addition to assessing the transaction’s financial terms, it considers factors such as the ESOP’s structure, relevant regulatory context and the potential implications for plan participants. Because ESOP trustees have a fiduciary duty to act in the best interests of employee plan participants, they seek to demonstrate informed, well-documented decision-making consistent with fiduciary obligations. An ESOP fairness opinion can assist in that process by providing independent financial analysis.

Learn more about our ESOP services