What Is a Fairness Opinion?
A fairness opinion is a letter from an independent financial advisor to a board stating that the offered price is fair from a financial point of view. It does not recommend whether to approve the deal — only whether the price is fair.
Why They Matter
Boards have fiduciary duties requiring proper care in evaluating prices. A fairness opinion provides evidence of fulfilled duties and protects against shareholder lawsuits alleging unfair pricing.
The Analysis
The advisor performs comparable companies analysis, precedent transactions, DCF analysis, premiums paid analysis, and LBO analysis (if relevant). They review management projections, assess strategic alternatives, and consider non-price deal terms.
Who Provides Them
Investment banks and specialized boutiques (Houlihan Lokey, Evercore). The advisor must be independent. Conflicts arise when the M&A advisor also provides the opinion — some boards engage a separate firm.
When Required
Standard in public company M&A, going-private transactions, related-party transactions, and management buyouts. Presented in proxy statements with methodology and assumptions.
Limitations
Only addresses price from a financial perspective. Does not evaluate strategic merits, whether all alternatives were explored, or long-term impact. Based on information at a point in time.