Fairness opinions play a critical role in mergers and acquisitions by providing boards and stakeholders with an independent assessment of a transaction’s financial fairness. These opinions support informed, defensible decision-making, especially in high-value or high-scrutiny deals. Unlike standard valuation analyses, a comprehensive fairness opinion considers not just valuation metrics but also deal structure, market conditions and potential alternatives. DFIN helps companies navigate this process with expert guidance and advanced technology, delivering clarity, transparency and speed. Our integrated solutions ensure boards have the rigorous, data-backed insight they need to protect fiduciary interests and instill confidence in the transaction’s integrity.
What is a Fairness Opinion?
When companies seek to merge interests or acquire other entities, fairness to shareholders is paramount. To establish that the plan is financially fair to the shareholders, many stakeholders in a business will seek a fairness opinion. The opinion provides a short evaluation of the deal, outlining factors that may make it fair or unfair from a shareholder’s standpoint. Although the board of directors most commonly requests a fairness opinion, shareholder groups or special committees may also call for one.
Fairness opinions come from a third party that has experience in M&A valuation methods and can look at the proposal without a conflict of interest. As a rule, organizations prefer to work with qualified financial advisors who have a fiduciary duty to work in the shareholders’ best interest and who also did not work on negotiations for the merger or acquisition.
Role of Fairness Opinions in M&A
During negotiations for a merger or acquisition, a fairness opinion — rooted in sound business valuation — helps to set a reasonable operating standard with benefits that last beyond the conclusion of the deal. Fairness opinions provide the following benefits:
- Assurance that the board of directors is handling the deal responsibly on behalf of shareholders
- Proof that the deal provides a fair arrangement for shareholders
- Negotiating power that provides boards with confidence and leverage when negotiating final deal terms
- Support to meet requirements from the SEC and other regulatory bodies
In competitive or contested deals, fairness opinions become even more important. While a fairness opinion cannot tell shareholders whether a deal is a good decision, it can reveal important considerations that shareholders need to determine how they want to vote. A fairness opinion can also become a crucial component of negotiations, helping stakeholders effectively advocate for their needs.
Regulatory & Legal Considerations
Although fairness opinions are often not required even for major transactions, they are strongly considered a best practice for significant changes in management, buyouts, a rule 13e-3 transaction, mergers, and acquisitions. When a new entity files Form S-4 and other documents with the SEC in advance of offering new securities as part of a merger, the SEC typically reviews the request and looks for signs of a conflict of interest or other problems.
Fairness opinions can help to establish a trail of due diligence for each company involved in the process, but their effect depends on the opinion and the source. If the SEC or other entities suspect that the fairness opinion is not an honest assessment of shareholder value in the deal, they may raise questions that the companies have to resolve to pursue the merger. Courts are more likely to view a qualified fairness opinion with favor, particularly in cases where fiduciary duty is in question.
Best Practices for Fairness Opinions
Fairness opinions may be obtained at various stages of a transaction, but initiating the process early — ideally during the initial phases of due diligence — offers the greatest strategic advantage. Securing an opinion at this stage equips boards and special committees with valuable insights that can inform deal negotiations and strengthen disclosure materials. Early integration also ensures that fairness considerations are factored into key decision-making moments and regulatory filings.
Although the final fairness opinion document is typically concise, its analysis must be thorough, including detailed financial statements, projected synergies and risk assessments. While the published opinion may omit proprietary or sensitive data, it should clearly communicate the valuation methodology, underlying assumptions and scope of review. This level of transparency reinforces shareholder confidence while maintaining confidentiality around competitively sensitive information.
Trust DFIN for Expert Compliance Software
An M&A fairness opinion is a vital component for companies seeking to protect their board of directors, provide clear shareholder communication and ensure deal integrity. DFIN’s suite of M&A solutions aims to simplify the process of due diligence and regulatory reporting as part of a merger or acquisition. Our virtual data room software provides a secure platform for businesses to share data with financial advisors and other stakeholders. Fairness opinions are not just procedural hurdles; they are complex, high-stakes components of M&A transactions. Contact us today to leverage DFIN’s solutions to navigate the process with confidence, transparency and precision.
