Fairness Opinion
Investment Banking glossary · M&A & LBO Modeling Dynamics
Definition
Written opinion delivered by an investment bank to the target's (and sometimes acquirer's) board concluding that the consideration is ``fair from a financial point of view'' to the relevant shareholders. Required as a matter of board-level fiduciary protection in most public-company deals; the analysis (comps, precedents, DCF, premiums paid) is detailed in the merger proxy (SEC DEFM14A) and provides litigation cover under Delaware law's enhanced-scrutiny standards.
Fairness Opinion in plain English
When one company buys another, the board of directors of the company being sold has a legal duty to make sure shareholders get a fair price. A fairness opinion is a formal letter from an investment bank stating that the price is "fair from a financial point of view." Think of it like getting an independent appraisal before you sell your house, so nobody can later accuse you of selling too cheap. The bank supports it with several valuation methods, and the letter is filed publicly, so if shareholders sue, the board can point to it and say "we did our homework" — which matters a lot under the strict standards courts apply to these deals.
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