Is the Price Right? Ask an Expert.
As the economy continues to recover, merger and acquisition (M&A) activity is picking up steam. In the current environment, however, making or evaluating an offer can be challenging. Obtaining a fairness opinion from an objective, independent valuation expert can help M&A participants and their management defend themselves against shareholder claims.
What is it?
A fairness opinion is a statement by a financial expert that a proposed transaction’s terms are fair to the company’s shareholders from a financial perspective. It doesn’t provide an opinion on whether the transaction is legally sound or a good business strategy.
Why get one?
Fairness opinions often are obtained in connection with M&As, particularly when public companies are involved. But they can be valuable — for both public and private companies — whenever minority shareholders claim that a transaction is unfair to them or that the company’s directors or officers are engaged in self-dealing.
In addition to M&As, situations that may call for a fairness opinion include:
- Management buyouts,
- Recapitalizations and restructurings,
- “Going private” transactions,
- Related-party or “insider” transactions,
- Stock buybacks,
- Employee stock ownership plan (ESOP) transactions,
- Bankruptcy reorganizations, and
- Liquidations.
A fairness opinion can help avert shareholder lawsuits by assuring them that the transaction’s financial terms are fair. It also can help ensure that directors and officers are protected by the “business judgment rule.” Provided they’ve acted in good faith, the rule shields them from liability for decisions made on an informed basis and in a manner they believe is in the best interests of the company and its shareholders.