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  • Bartłomiej Dmitruk

Fairness Opinion - the process of preparing an independent opinion using Virtual Data Room

Fairness Opinion is the opinion most often used in the context of calls for shares of a given company on the capital market. It is a specialized service, reserved for strategic situations or transactions, that supports the decisions of the Management Board and / or Supervisory Board of a given company. In the article, we will try to present the definition, process and scope of a Fairness Opinion, as well as indicate why the use of Virtual Data Room in such a process is the best market practice.

What is a Fairness Opinion, who is preparing it, for whom and when?

A Fairness Opinion is most often defined as an opinion of an independent, professional external entity, prepared at the request of one of the parties to the transaction, regarding the transaction or its specific conditions at a given moment in time, assessed from the point of view of "fair value" only from a financial point of view.

Fairness Opinions are prepared by external advisers, primarily investment banks, specialized financial advisory companies, universal banks, investment firms or statutory auditors.

Fairness Opinions are usually prepared at the request of the governing bodies of public companies - the Management Board and / or the Supervisory Board - although in certain situations it is possible to order such opinions by another party, e.g. a significant shareholder.

Fairness Opinions are most often issued in connection with transactions carried out on the public market (e.g. a tender offer for the sale of company shares, buyout of own shares, leveraged buyout), restructuring leading to separation or merger of companies, sale of key assets of the company or withdrawal of company shares from trading on the market. regulated.

Fairness Opinions spread mainly in the public market, although theoretically they can be used in private transactions.

The process of preparing a Fairness Opinion - a complex analysis of the Company and its environment

When preparing a Fairness Opinion, the advisor focuses on the analysis of the proposed financial terms of the transaction, historical financial results achieved by a given company, development prospects for the entire market, industry and the company itself. On the basis of financial forecasts, investment plans as well as other information concerning the market and competition, a fair range of the value of the company or transaction is determined.

The company provides the financial data and additional information indicated by the advisor. At the same time, it indicates a team of contact persons during such a process. An independent opinion is prepared by an advisor usually within a few weeks on the basis of the provided data and interviews. Most often, the situation regarding Fairness Opinion is so strategic and urgent that the work must be carried out extremely efficiently, and all actions and decisions must be made immediately.

What does Fairness Opinion look like?

The Fairness Opinion is theoretically and exemplarily composed of three separate documents: Opinion Letter, Valuation Memorandum and Factual Memorandum.

An Opinion Letter is a written opinion sent by a contractor to the contracting entity regarding the financial terms of a transaction. It includes: indication of the recipient of the opinion, indication of the legal basis of the opinion, description of the transaction subject to assessment, indication of the sources of information on the basis of which the opinion was prepared, indication of objections and limitations related to the issuance of the opinion, indication of possible conflicts of interest, description of the analyzes and research methods used, an indication of the applicable law and dispute resolution procedure.

The Valuation Memorandum is a document that includes the proper content of an opinion. Most often, in one sentence, the draftsman of the Fairness Opinion states, with reference to the information on the transaction contained in the Opinion Letter, the reservations and limitations mentioned above, and on the basis of the analyzes performed, whether or not the measurement of the transaction falls within the estimated range of fair value from the financial point of view. The Valuation Memorandum may also contain more detailed information on the valuation methods used.

Factual Memorandum contains a list of all data, documents and a list of all persons interviewed to obtain the information necessary for the proper preparation of the opinion.

In fact and in practice, the Fairness Opinions issued rarely consist of these three documents. Typically, this is a one-page opinion along with a multi-page report. The opinion contains a significant amount of information about the limitation of the issuer's liability and the most important information whether the valuation is within the fair value range set by the issuer of the opinion. Such an opinion is usually an open document. The report provides more information on the data used to prepare the valuation, the methodology and detailed calculations for the fair value measurement. It is most often a classified document reserved for the company's Management Board and Supervisory Board.

Why is it worth having an independent opinion?

Fairness Opinions come originally from the American market, but have been successfully operating in Europe for over a dozen years. Such an opinion should be a significant support for any Management Board of the Company faced with the need to issue an opinion on the financial terms of the transaction.

Fairness Opinion performs mainly the following functions:

  • information - in particular limiting the asymmetry of information in M&A transactions or transactions on the capital market among shareholders / shareholders and increasing the transparency of the company / transaction and its valuation,

  • protection - support for the company's Management Board in the process of making decisions about the fairness of the financial terms of the transaction,

  • litigation - corresponding to the protective function, meaning that in the case of pending court proceedings to the detriment of the company, the use of fairness opinion in the transaction significantly weakens this allegation,

  • signaling - meaning that issuing a positive opinion on the fairness of the valuation, especially by a reputable advisor, is a strong signal for shareholders to respond positively to the tender offer,

  • argumentative - the opinion of an independent expert on the fairness of the valuation is a strong argument that the transaction is effective from an economic point of view,

  • price-setting - a negative assessment of the terms of the valuation and, for example, a tender offer for shares in the company may induce the summoner to improve the price of the tender offer and motivate other entities to fight to take control of the company. As a consequence, this process leads to an increase in the price of the tender offer,

  • communication - improving communication between the Management Board and / or Supervisory Board and investors and other stakeholders of the company.

It is recommended that the Management Board commission an independent opinion, especially when there is a risk of the terms of the offer deviating from the rates or market conditions. Such situations include:

  • transactions involving entities related to the company,

  • attempts of a hostile takeover of the company,

  • disregarding the interests of minority shareholders,

  • submission of offers for the acquisition of the company by several independent entities,

  • submitting a purchase offer in circumstances unfavorable for the company, e.g. when unsatisfactory financial results are achieved or under pressure from other significant events, e.g. bad publicity.

Fairness Opinion is an excellent tool that allows you to independently assess the legitimacy of a planned venture or transaction. The role of the advisor is to independently assess whether the conditions or planned results will bring measurable benefits from the implementation of the proposed activities.

Fairness Opinion provides a reliable and objective opinion, thanks to which the company's investment decisions are more precise and rational. At the same time, the Management Board of the company receives an objective opinion of a specialized consulting company regarding the planned activities.

Virtual Data Room as a support and guardian of the Fairness Opinion preparation process

Virtual Data Room is an invaluable tool in the preparation and work on the Fairness Opinion for several important reasons:

1. allows you to reliably prepare and document the Fairness Opinion process, in particular:

  • allows you to prepare a package of documentation and additional information for the advisor in an orderly and fully controlled manner;

  • allows to grant access and appropriate authorizations to advisers and persons indicated within the company to the process of developing a Fairness Opinion;

  • allows you to control and monitor the work of advisers in a safe, encrypted environment;

  • prepare a Factual Memorandum in the form of the so-called A "VDR White Paper" summarizing all documents and communications for the opinion;

  • Additionally, in VDR SECUDO it is possible to save all events of a given project on a durable medium, in blockchain technology;

2. allows you to maintain appropriate security and confidentiality of communication, in particular:

  • makes it possible to provide an advisor with confidential information or sensitive data that may be price-generating, in a safe manner and under the full control of the Company;

  • enables the sharing of large files (financial forecasts, financial models, reports) in a safe, encrypted manner, without the need to send them via e-mail or other publicly available tools;

3. allows you to conduct the entire process professionally and effectively in one place with 24/7 access:

  • VDR is a solution well-known by reputable advisors and used in M&A projects and transactions as well as on equity capital markets. Advisors know and understand very well the advantages of running projects using the facilities and functionality of VDR;

  • Virtual Data Room is a safe environment in which you can carry out the entire project aimed at issuing a Fairness Opinion by an advisor under the full control of the Company;

  • VDR is an environment available 24 hours a day, 365 days a year. It is also an environment accessible from anywhere in the world with access to the Internet and a computer or tablet.

About us

DealDone is a specialized company that offers high-quality products in the field of information and data security. The DealDone team consists of people with many years of international experience in investment banking, investor relations, technology and cybersecurity. We offer services and software in the field of modern technologies for the circulation of confidential information, classified information, sensitive data and digitization, security, encryption and sharing of data and documents inside and outside the organization.

DealDone independently developed and introduced for sale the Virtual Data Room SECUDO solution. VDR SECUDO is a platform for secure exchange and processing of confidential information offered in the Software-as-a-Service model for business clients, in the form of virtual data rooms.


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