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SHELDRICK, MCGEHEE & KOHLER

"Fairness requires that
we do not make judgments
until we know all the facts."
--Anonymous

"All virtue is summed up
in dealing justly. "
--Aristotle

 

FAIRNESS OPINIONS

Fairness opinions are normally issued by a qualified financial advisor in situations where an independent, third party confirmation is needed to determine that a contemplated transaction meets the various standards of financial fairness.  Typically the fairness opinion is issued to the company’s Board of Directors, or a specific committee or group affiliated with the company, and the opinion is generally requested prior to the completion of a financial transaction involving a material acquisition and/or sale of all or part of the company or its assets.  It is vitally important for the Board to carefully direct the opinion to a specific principal’s needs (e.g. Board, minority shareholder, all shareholders).  Fairness opinions are generally the final representations associated with a major corporate financial transaction.
There are numerous situations wherein a fairness opinion may appropriately be included in a major transaction event:

  • The sale of a privately-held business where there are multiple shareholders, especially if some of them are not actively involved in the business. 

  • An opinion that insiders, and shareholders who will remain with a company which has been sold, are compensated for continued employment with the acquiring company, or through non-compete agreements, stock incentive plans, or other compensation at levels which do not dilute the true underlying value of the company’s equity owners. 

  • Employee Stock Ownership Plans (ESOPs) require a fairness opinion when the stock of the sponsoring company is sold to a third party or substantially all of the company’s assets are sold.

  • In situations where there are multiple candidates to acquire a company and the Board seeks an opinion confirming their selection of a particular offer. 

  • Opinions may address not only the price and/or total anticipated value of the transaction, but also the associated terms and form of the payment to ascertain that all components of the transaction are adequately considered with regards to fairness.

  • In cases of recapitalization or acquisition of minority shareholder interests.

Documentation and records related to fairness opinions include:

  • An explanation from the Board explaining the corporate background and purpose of the proposed transaction. 

  • Verification that the parties negotiated at arm’s-length, and that all parties were represented by counsel and financial advisors.  Interviews may be held with both buyer and seller representatives.

  • A review and analysis of the past three to five years of the company’s financial performance and business operating history.

  • Comparison of negotiated price with similar market transactions or industry multiples. 

The fairness opinion will assert that the points discussed above have been duly examined and reviewed and, presumably, will indicate that the transaction as contemplated or completed represents the best interests of all shareholders from a financial and business perspective. 
For over 25 years, Sheldrick, McGehee & Kohler has provided fairness opinions for both public and private companies.  The firm has represented corporations listed on the New York Stock Exchange, the American Stock Exchange, and NASDAQ, and have worked with major investment banking firms, venture capital/private equity firms and both national and local public accounting firms on behalf of their clients.

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