When you are engaged in a merger or acquisition, the regulatory authorities might sometimes require you to obtain an independent opinion on the financial aspects of the transaction. Even when this is not the case, it is important for you to ensure that the transaction is fair.
How does it work?
- A fairness opinion may be desirable when one of the parties to the transaction considers that a higher level of control is needed. This might be so, for instance, when:
- An independent opinion is desired regarding the value of the takeover;
- There is a potential conflict of interest (minority buyout, share classes with different rights, etc.);
- Management or board members stand to benefit from the transaction;
- The transaction entails significant changes to the share capital;
- The planned changes will adversely affect the competitiveness of one of the parties, etc.
- The Business Valuation team at Corporate Finance specialises in opinions of this kind. Having been called in, the team proceeds in three stages:
- Stage 1: analysis of the context of the transaction and any specific aspects in order to identify potential conflicts of interest. The resources and time needed to issue a fairness opinion are estimated based on the results of this preliminary analysis.
- Stage 2: analysis of documentation and client interview, financial modelling and evaluation. A preliminary evaluation report is drafted and re-examined, and any specific problems are identified. The Management Representation Letter and Fairness Opinion Letter are drafted.
- Stage 3: the documents are presented to the clients for their opinion and possible amendment, following which the final version is presented to the interested parties.
- Security: management and the board of directors are supported in their decision.
Good to know
- It is essential to involve your relationship manager and a Corporate Finance Officer as early as possible in the analysis of your strategic options.
- The Fairness Opinion process takes about three to four weeks.
- The cost is calculated according to factors such as the complexity of the transaction, the sensitivity of the situation (risk of conflict, for instance) and the duration of the transaction. Generally speaking, the value of the transaction is not taken into account.
- In most cases, a fairness opinion comprises independent advice. It is also possible, however, for the bank to issue an opinion within the context of an existing business relationship.
- No minimum rating is required and all business sectors can be taken into consideration.