What is the definition of fair? It is an amorphous term, and subject to the perspective of each person. Thus, I contend that a Fairness Opinion is better termed a Reasonableness Opinion.

The Fairness Opinion letter contains the phrase "Fair from a financial point of view." Usually the "point of view" includes the company shareholders of the buying firm. In fact, the Board of Directors of the buyer (or a Special Committee therein) hires the opinion as a protection or insurance policy against shareholder lawsuits.

Fairness opinions originated from public company transactions. Now, there are nearly as many opinions hired by and issued for private company deals. Is this shift meaningful in terms of the analysis required to support the opinion? Not really, since the criteria for supporting an opinion has increased in breadth and scope, primarily driven by court cases involving this work.

Essentially, there are two types of fairness/reasonableness opinions, as follows:

  1. In the first instance, a potential deal has been negotiated as to price and terms. These cases can be tricky. Does the valuator issue an opinion that supports the deal just to appease the client and collect a handsome fee? Many people think so. At the same time, if the detailed analysis supports the transaction, the opinion is viable.
  2. The other instance occurs when alternative deal terms may have been discussed, but no decision has been committed to writing. We appreciate these circumstances, since we are not tethered to someone else's terms and conditions.

Here we are not required to opine as to market value/price of the deal. Rather, we develop a range of reasonableness value. Then, we verbalize this range to the client. So long as the client selects a price within the range, we can issue a fairness opinion.