By Gilbert E. Matthews, CFA, Sutter Securities, Inc. (San Francisco, Calif., USA)
A fairness opinion is a document which states whether a transaction, or the consideration payable in a transaction, is fair, from a financial point of view, to a particular group of investors. Fairness opinions are most often issued by investment banking firms, but also by commercial banks, accounting firms, and entities specializing in valuation. The opinions are normally addressed to equity investors, sometimes to all common shareholders or limited partners, and sometimes to a specific subgroup, e.g., public shareholders, or shareholders other than an interested party. Fairness opinions serve two purposes: (i) they provide key decision-makers with information which may affect their decisions, and (ii) they can serve as evidence in litigation that the decision-makers used reasonable business judgment in approving a transaction.