The role of fairness opinions in M&A transactions

Fairness opinions have become a standard part of boardroom decision-making in mergers, acquisitions, and other corporate transactions. These documents, issued by independent financial advisors, assess whether the financial terms of a deal are fair from a financial point of view to a particular stakeholder group—typically shareholders. While not required by law, fairness opinions offer an added layer of governance, helping boards discharge their fiduciary duties and minimize exposure to shareholder litigation.

Boards rely on fairness opinions to support fiduciary responsibility.

In any corporate transaction—especially those involving changes of control—directors owe a fiduciary duty of care and loyalty to shareholders. When evaluating a potential deal, the board must ensure it is acting in the best interest of the company’s owners.

A fairness opinion strengthens this process by:

• Documenting that the transaction terms are financially reasonable

• Providing independent analysis from a third-party advisor

• Serving as evidence that directors acted with due care in decision-making

This becomes particularly important when:

• The buyer or seller is a related party (e.g., management-led buyouts)

• There are competing offers or limited transparency on valuation

• The transaction involves complex consideration (earn-outs, convertible instruments, etc.)

By including a fairness opinion in the board’s deliberations, directors reinforce the legitimacy of their process—even in the event of shareholder litigation.

The fairness opinion process follows rigorous valuation procedures.

A fairness opinion is not simply a high-level endorsement. It is the result of detailed financial analysis and valuation modeling performed by an investment bank or specialized advisory firm.

Key steps in preparing the opinion typically include:

1. Review of deal terms – Purchase price, consideration structure, timing, and any conditional elements

2. Financial due diligence – Company financials, forecasts, debt structure, off-balance sheet liabilities

3. Comparable company analysis – Valuation multiples of similar public companies

4. Precedent transaction analysis – Deal multiples in comparable M&A transactions

5. Discounted cash flow (DCF) – Intrinsic valuation based on projected cash flows and risk-adjusted discount rates

6. Sensitivity analysis – Stress testing outcomes under different assumptions

These methodologies help the advisor form a defensible opinion that the transaction is fair—neither grossly undervalued nor unjustifiably dilutive.

Typical opinion recipients and transaction types vary.

While fairness opinions are most often issued in merger and acquisition deals, they are also used in a variety of other corporate events where valuation is at issue.

Deal Type	Common Opinion Recipient
Public company mergers	Target company board/shareholders
Management buyouts (MBOs)	Special committee of independent directors
Related-party transactions	Conflicted board committee
Spin-offs and carve-outs	Board of parent or spun-off entity
Going-private transactions	Shareholders, especially minority holders
Recapitalizations or restructurings	Full board or debt holders

In many of these cases, the fairness opinion is limited to a specific class of shareholders or stakeholders, depending on the structure and conflicts involved.

Fairness opinions are not the same as valuation reports.

It’s important to distinguish a fairness opinion from a comprehensive valuation report. While both involve financial analysis, the purpose and audience are different:

Feature	Fairness Opinion	Valuation Report
Audience	Board of directors / shareholders	Internal management / investors / courts
Objective	Assess fairness of deal price	Determine standalone business value
Depth of analysis	Focused on deal terms	Broader analysis of business drivers
Legal significance	Used to support fiduciary process	Often used in tax, litigation, or funding
Format	Brief summary, legally reviewed	Detailed report, with broader assumptions

A fairness opinion is a narrow but critical tool, specifically tied to the transaction at hand and tailored to help boards make informed, defendable decisions.

Special committees often commission the opinion in conflicted deals.

In situations involving conflicted parties—such as a buyout led by existing management or a controlling shareholder—it’s common practice to form an independent special committee of the board to evaluate the transaction separately.

This committee:

• Selects and engages the financial advisor issuing the fairness opinion

• Negotiates deal terms independently from conflicted insiders

• Receives separate legal counsel to safeguard its process

The use of a fairness opinion in these cases is critical to avoid claims of breach of fiduciary duty or unjust enrichment. Courts have consistently reviewed the process undertaken by special committees to evaluate whether it met the standards of loyalty and care.

Disclosure of fairness opinions in public filings is standard practice.

In public company deals, fairness opinions must be disclosed to shareholders as part of the merger proxy or tender offer documents. These disclosures typically include:

• The identity of the advisor and its relationship with the parties

• A summary of the valuation methodologies used

• Any limitations or disclaimers in the opinion

• The fee paid to the advisor, including success-based compensation

This transparency enables shareholders to evaluate the objectivity of the opinion and determine whether to approve the transaction. Regulators may also scrutinize these disclosures during review.

Legal precedent reinforces the importance of process, not just price.

Courts in Delaware and other major corporate law jurisdictions have emphasized that a well-documented process—including obtaining a fairness opinion—can shield directors from liability under the business judgment rule.

While a fairness opinion does not guarantee protection, its presence signals that the board:

• Acted with diligence

• Relied on qualified independent experts

• Made an informed decision based on objective information

Absence of such documentation has been cited in cases where courts applied entire fairness review, a stricter standard that often leads to unfavorable outcomes for boards and companies.

Fairness opinions remain essential in high-stakes transactions.

Although some critics argue that fairness opinions may be influenced by repeat client relationships or fee structures, they continue to play a critical role in deal governance. Boards and legal counsel rely on them not just for regulatory optics, but as a way to bolster the integrity of corporate decision-making.

In a deal landscape characterized by growing shareholder activism, complex deal structures, and legal scrutiny, fairness opinions remain a central component of the toolkit that boards use to execute sound, transparent, and defensible transactions.

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