Fairness opinion

The staff notice below discusses fairness opinions that boards of directors and special committees obtain from financial advisors in connection with material transactions. For the valuation side, see getting a business valuation before selling.

What the regulator and CBV say

CBV Institute defines a fairness opinion as an opinion on whether the consideration proposed to be paid or received is fair from a financial point of view to the party paying or receiving it. A Canadian Securities Administrators staff notice published by the Ontario Securities Commission, which concerns reporting issuers, says applicable securities legislation does not require a fairness opinion as a condition of proceeding with a material conflict of interest transaction. It says that, in staff’s view, apart from a required formal valuation, the board and special committee decide whether one is necessary, and that a special committee cannot substitute the results of a fairness opinion for its own judgment.

What to check or ask

• Who engaged the advisor, and on what terms
• Which party the opinion speaks to: the payer or the recipient
• Whether the document states a value, or only a conclusion on fairness; compare a comprehensive valuation report
• Whether any securities rules apply to your deal at all