How fairness opinions are prepared and delivered by investment banks
- Graziano Stefanelli
- Sep 7
- 3 min read
Fairness opinions provide an independent view on deal pricing.
A fairness opinion is a written statement issued by an investment bank or financial advisor that opines on the fairness, from a financial point of view, of the consideration offered in a transaction. Boards of directors often request fairness opinions when evaluating M&A deals, spin-offs, recapitalizations, or other corporate actions that affect shareholders. These documents help boards meet fiduciary duties by providing a third-party assessment of valuation and deal terms.
The process begins with a formal engagement and data access.
Before preparing the opinion, the bank must be formally engaged as a fairness advisor, separate from any role as a sell-side or buy-side M&A advisor. Once engaged, the bank:
Reviews the deal terms, structure, and form of consideration (cash, stock, mix).
Conducts due diligence on the target or combined entity, with access to management, forecasts, and internal materials.
Confirms the independence of judgment, especially if the bank is also involved in the deal execution.
If there’s a potential conflict (e.g., same bank also advising the seller), additional internal controls or fairness sub-committees may be established.
Valuation analysis supports the fairness assessment.
To assess whether the deal is financially fair, the investment bank applies multiple valuation methodologies:
The banker constructs a valuation range and assesses whether the transaction consideration falls within or above that range.
The fairness opinion letter is formal, precise, and carefully worded.
The written fairness opinion typically includes:
A description of the transaction and parties involved
A summary of methodologies used and assumptions applied
A statement of fairness, often phrased as:
“Based upon and subject to the foregoing, we are of the opinion that, as of the date hereof, the consideration to be received… is fair from a financial point of view.”
It deliberately does not address legal fairness, strategic rationale, or post-deal performance.
Board presentations accompany the opinion delivery.
The bank presents its fairness opinion to the client’s board of directors or a designated transaction committee. This presentation typically covers:
Summary of valuation analyses
Deal-specific issues (e.g., contingencies, synergies, break fees)
Review of financial forecasts and risk factors
Explanation of opinion scope and limitations
The board may use the opinion to help justify its decision in internal minutes and public filings.
Fairness opinions reduce litigation and reputational risk.
Boards seek fairness opinions to:
Demonstrate that they acted prudently and independently
Reduce exposure to shareholder lawsuits in controversial or conflicted deals
Support SEC or regulatory disclosures with independent validation
Satisfy stock exchange rules or fairness hearing requirements (e.g., under Delaware law)
Even if not legally required, fairness opinions often serve as a protective measure when deal valuations are at risk of being contested.
Compensation for fairness opinions follows a fixed-fee structure.
Unlike success fees tied to deal closing, fairness opinions are typically provided for a flat fee, reinforcing the advisor’s independence. However, if the same bank is also serving as M&A advisor, fairness fees may be negotiated as part of the broader engagement.
Some banks maintain internal committees to vet fairness opinions before issuance, adding another layer of review and independence.
Fairness opinions serve as a safeguard in high-stakes decisions.
In significant transactions, especially those involving insider participation, minority shareholders, or complex valuation scenarios, the fairness opinion acts as a board-level defense and a public signal of integrity. While not a guarantee of value, it confirms that the deal consideration meets reasonable financial expectations—backed by credible methodology and professional judgment.
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