What Does Fairness Opinion Mean?
A fairness opinion is a report that is completed by an investment bank or corporate finance advisor for a company that is being bought and/or sold. The opinion provided relates to the valuation of the company assessed by the buyer and whether or not the value is appropriate and fair. A fairness opinion is particularly important when there is a multitude of shareholders (private or public), as there can be the perception that the company sold was unfairly valued.
Divestopedia Explains Fairness Opinion
A fairness opinion may be necessary for private companies in a number of scenarios. These include shareholder buyouts, purchase price assessments and roll-ups where two or more companies are being merged and consideration shares are being exchanged. However, during a normal transaction, a buyer will seldom commission a fairness opinion. This is because the buyer is determining the enterprise value of the target, and the onus is on the target and its advisors to assess the "fairness" of such offer.
In this case, a fairness opinion report is not really necessary, but a detailed valuation of the seller (which ultimately is a fairness opinion) along with an assessment of the transaction structure, tax consequences, etc. are produced instead. Either the seller has sufficient knowledge to assess an offer (which is seldom the case as usually buyers know more than sellers about the process of buying and/or selling a business), or the seller seeks advise on the offer fairness by getting a valuation.