When might a Fairness Opinion be used in a financial context?

A Fairness Opinion is typically sought by boards of directors or management before finalizing a transaction to assess whether the financial terms of the deal are fair from a financial point of view. This document is important at the time just before a deal closes, as it provides an independent assessment that can help protect the board from potential legal repercussions and ensure that they have fulfilled their fiduciary duties.

The timing is crucial because it allows the board to align the value of what shareholders are receiving with the valuations and market standards, affirming that the deal carries no hidden harm to shareholders. Thus, obtaining a Fairness Opinion right before the closing of a deal provides necessary assurance and reinforces the integrity of the transaction.

While a Fairness Opinion can also be initiated before a deal starts or during the bankruptcy process, its primary function is to affirm the fairness of financial terms right at the edge of deal completion. After a company is acquired, the utility of a Fairness Opinion diminishes because the transaction has already taken place, and the focus shifts away from the evaluation towards integration and post-acquisition strategies.