Fairness opinion
Also known as: Board opinion, Financial fairness letter
A narrow statement, on a stated date, about one specific offer. It says far less than most readers assume, and what it says is precise.
1 · SnapshotThe one idea to remember
2 · BeginnerWhat actually happens?
When a board recommends that its shareholders accept an offer, it needs something more than its own judgement. So it asks an investment bank for a fairness opinion.
The opinion is one or two pages. It says that, in the bank's view, the amount being offered is fair to the shareholders from a financial point of view, as at a stated date, on stated assumptions.
Read that sentence again, because every clause in it is doing work. It is about the amount, not the transaction. It is fair, not best. It is from a financial point of view, not a strategic one. It is on a date, and the world changes afterwards. And it rests on assumptions the bank did not verify.
What it emphatically does not say is that the price is the highest obtainable, that the deal is a good idea, or that the company is worth this. Those are different questions and the opinion is careful to avoid all three.
- 1
Engagement1–2 wks
Scope, fee and independence are agreed — usually a flat fee that does not depend on the outcome.
- 2
Analysis2–5 wks
The full set of methods is run, and the offer is placed against the ranges they produce.
- 3
Committee review1–2 wks
An internal committee tests the work before anybody signs, because an opinion is a liability.
- 4
Delivery1 day
The opinion is given to the board, orally then in writing, on a stated date and stated assumptions.
- 5
Disclosurewks
The analyses relied on are summarised in the shareholder document, which is the most accessible worked valuation most people will ever read.
Independence — The bank's own committee decides. An opinion on whether a price is fair should not come from somebody whose fee depends on the answer being yes.
Will the committee sign — The valuation committee decides. It can and does refuse, and a refusal at this stage ends a transaction more effectively than any negotiation.
Who is on the deal
| Who | Side | What they are actually for |
|---|---|---|
| The board | Sell side | Receives the opinion, and it is one input to a decision rather than the decision. |
| The opining bank | Neither | Says the consideration is fair from a financial point of view, on a stated date and stated assumptions. |
| The valuation committee | Neither | Signs off internally, and can refuse — which ends transactions. |
| Shareholders | Neither | Read the summary in the disclosure document, which is the most accessible worked valuation most of them will ever see. |
| Litigators, afterwards | Neither | Examine the opinion when a deal is challenged, which is why its wording is so careful. |
- Desk
- Valuation & Deal Analysis
- Says
- The consideration is fair, from a financial point of view
- Does not say
- That the price is the best obtainable, or that the deal is wise
- Paid for
- Usually flat, and not dependent on completion
- Summarised in
- The shareholder document, which is worth reading
What decides whether it completes
Not how hard this is, and not a rating — there is deliberately no total. It says which of five blockers decides whether this transaction happens at all, in the same order on all 70 transaction types so they can be compared. This publication's own reading; see the notice below.
- Pricematters
- Financingbarely applies
- Approvaldecides it
- Diligencematters
- Executiondecides it
What decides it here. The constraint is not analytical, it is institutional: an internal committee has to be willing to sign, and it can refuse. The wording is then drafted with litigation in view, which is why the opinion says so much less than the people quoting it usually claim.
3 · IntermediateHow it runs in practice
What sits behind it
The full set of methods: trading comparables, precedent transactions, discounted cash flow, and where relevant a buyout analysis. Each produces a range, and the question is whether the offer falls within or above them.
The summary of that work appears in the shareholder document, and it is genuinely the most accessible worked valuation most people will ever read — real numbers, real methods, real ranges, published free.
Why the fee structure matters
The opinion is usually paid for separately from the advisory fee, and often flat, and not dependent on the deal completing. The logic is exact: an opinion on whether a price is fair should not be delivered by somebody whose fee depends on the answer being yes.
On transactions with an obvious conflict — a take-private where management is on both sides, or a continuation vehicle — an independent bank with no other role is frequently engaged for exactly this reason.
The valuation committee
No banker signs one alone. An internal committee reviews the analysis, the assumptions and the wording before it goes out, because the opinion is a liability that survives the transaction. That committee can and does refuse, which ends transactions more effectively than any negotiation.
The assumptions paragraph
Every opinion contains a long section saying what the bank relied on and did not check: management forecasts taken as reasonably prepared, public information assumed accurate, no independent valuation of assets, no legal or tax advice. It reads as boilerplate and it is the exact scope of what has been said.
4 · AdvancedThe numbers & the documents
Why the wording is so careful
Because these are examined in litigation. When a transaction is challenged, the opinion, the board's process and the adviser's independence are all scrutinised. Every phrase has been shaped by that: "from a financial point of view" excludes strategic merit, "as of the date hereof" excludes everything afterwards, and "fair" is deliberately not "best".
Understanding this explains the document. It is not evasive drafting; it is precise drafting about a genuinely narrow question.
The criticisms, fairly stated
- The adviser is usually the transaction adviser, paid largely on completion — which is why separate engagement and flat fees for the opinion have become more common.
- The ranges are wide enough to accommodate most prices, which is honest about the methods and limits what the opinion excludes.
- The forecast is management's, and management may have an interest in the outcome. The opinion says it relied on it.
- Opinions are almost never negative — but a bank unwilling to give one simply does not, and the transaction changes or stops before anybody sees a refusal.
That last point matters and is invisible from outside: the absence of negative opinions is partly selection rather than complacency.
What a board is actually getting
Not a decision. A structured, documented, independently reviewed analysis that its judgement can be tested against — and a record that it obtained one. Both parts are the point, and the second is not cynical: a board that recommends an offer without any external check has a weaker answer if it is later asked how it decided.
How to read one
- The date, and what happened between then and now.
- The assumptions section, which is the scope.
- Whether the opining bank has any other role in the transaction, which is disclosed.
- The ranges in the summary, and where the offer sits within them.
The formulas above are standard textbook formulations, simplified for teaching. They explain the mechanism — they are not a valuation tool, and they will not reproduce a dealer’s price.
5 · Desk notesHow people on the deal think about it
Now say it back
Close the page and give Fairness opinion in four sentences. It takes a minute and it is the only way to find out whether reading it was enough.
- Who wants what — name both sides and what each one is actually trying to get.
- What has to happen, in order — the three or four stages, not the whole timetable.
- Where the money comes from — cash, new shares, or borrowed; somebody has to fund it.
- What kills it — the ordinary way, not the dramatic one.
Where this transaction shows up elsewhere
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- MediumValuationDeskThe arithmetic underneath every transaction: discounted cash flow, comparables, precedent transactions, the buyout…