Fairness Opinion

A fairness opinion is an expert assessment of whether the price of a transaction is appropriate from a financial perspective. It is prepared by a financial adviser, often for the supervisory board or management board. It supports decision makers in preparing their decision. What the opinion is not matters: it neither recommends the transaction nor determines a specific company value, but assesses the financial fairness of the consideration using recognised valuation methods and disclosed assumptions. It is normally based on a discounted cash flow model together with comparisons to listed companies and precedent transactions, often supplemented by premium analyses in public takeovers.

A fairness opinion can supplement a board’s information base, but does not remove its responsibility. Typical occasions include public takeovers, related-party transactions, mergers, sales of significant investments and transfers into a continuation fund where the same manager acts on both sides. Relevant issues include the valuation date, the quality of forecasts and whose financial perspective the opinion addresses. A price that is fair to the seller does not automatically make the transaction economically beneficial for every participant.

Independence is critically debated where the same bank advises on the transaction and is paid a success fee. Potential conflicts and remuneration must therefore be transparent. A separate mandate with a fixed fee can strengthen independence. Timing is essential, because the opinion should prepare the board's decision rather than justify it afterwards. It is therefore prepared before the resolution and on the basis of the negotiated draft agreement. The scope of the statement also needs clarifying, since it expressly addresses only financial fairness and covers neither legal nor tax nor strategic questions. The report therefore regularly contains a detailed description of the assumptions and the limits of the work.