Definition
A fairness opinion is a written opinion delivered by a financial advisor (typically an investment bank) to a target board, stating whether the consideration to be received in a transaction is “fair, from a financial point of view, to the holders of the target’s common stock.”
What it analyzes
The supporting analysis typically includes:
- Discounted cash flow (DCF) — intrinsic value
- Comparable companies analysis — trading multiples of public peers
- Precedent transactions analysis — multiples paid in comparable M&A deals
- Premium analysis — the offer’s premium versus historical premium ranges
- 52-week trading range — recent stock price context
Why it matters
The opinion is a key input to the board’s recommendation under its fiduciary duties. A “fair” opinion supports a recommendation to accept; the absence of a fairness opinion (or a “not fair” opinion) is a major red flag.
Limitations
A fairness opinion is not a recommendation, a guarantee, or a representation about whether the price is the highest achievable. It is a narrow financial-perspective conclusion. Boards still owe independent diligence under their Revlon and Unocal duties.