Fairness Opinion

Fairness Opinions (English, German, mutatis mutandis, decent, honest, fair opinions ) are statements by an independent appraiser to assess a planned company ( ver) shopping ( Mergers & Acquisitions ) from the shareholders' perspective.

While the fairness opinion only includes the review of publicly available documents, diligence procedures are subjected to and evaluated strategies and books of the companies involved an in-depth examination when due.

Components

A fairness opinion regularly consists of two parts:

  • The valuation memorandum ( eng. / Latin, German about value judgment ), detail the possible transaction, the information base used, assessment procedures and the derivation of the judgment are presented in the, as well as
  • The Opinion Letter (English, German literally opinion letter ), of the transaction and its final assessment describes in aggregate ( summary ) form.

Application and disclosure

Directors or supervisory boards provide fairness opinions in investment banks or large accounting firms in order. These provide an opinion or a written opinion. They deal specifically to a buy or sell offer in the form of cash and / or securities. Addressee of the Fairness Opinion is first the ordering Board / Supervisory Board. Whether a fairness opinion should also be made available to the shareholders and, if so, to what extent is regulated nationally different. In Germany, there is no obligation to publish; if companies voluntarily publish, only the opinion letter will be made available.

Goals and Objectives

With the commissioning of fairness opinions by corporate bodies three objectives can be pursued:

  • Legal cover of the Management Board and the Supervisory Board,
  • The conviction skeptical shareholders who threaten to challenge a negative attitude the transaction and
  • Of obtaining additional information about the transaction.

In a representative survey empirical study for Germany ( CDAX companies) show Lobe / Essler / Röder (2007) that especially the first and the third point of the German practice play a role. From the theoretical Lamura / Rapp / Schwetzler / Wilms have shown (2009) that fairness opinions in the interest of the shareholders to take a certification function and can reduce information asymmetries in the context of corporate transactions. The content and the significance of the published fairness opinions differ greatly: A survey of German operations in 2007 by Ader / Schwetzler (2008 ) shows that in addition to the assessment of the transaction usually given a brief overview of the methods used for the assessment and evaluation will. The DVFA has developed as a Society of Investment Professionals in Germany principles of fairness opinions, formulate the requirements for the content and the publicity of fairness opinions. The continuation of O.A. Collection for the year 2008 by Ader / Schwetzler (2009 ) shows that the developed standards are in practice acceptance.

Criticism

Disputed the independence of the expert is ( investment banks etc.). A fairness opinion can properly assess the profitability of a transaction only if experts are independent of other considerations in their considerations. Investment banks advise again and again also the buying or selling company in addition to the creation of the fairness opinion. The consulting fees are often linked to the transaction completion. This can very easily Conflicts of interest arise. If not let such conflicts of interest is unavoidable, they should be disclosed in the opinion letter, at least. After the O.A. DVFA principles should always be included to any existing conflicts of interest an explicit statement. Currently, this is not always the case: according to the study by Ader / Schwetzler (2008) contain 1/3 of the published fairness opinions no statement as to whether the writer is also advised on the transaction.

Determinants and capital market relevance

For the relevance of the fairness opinion to the capital market for the U.S. are in front of some studies that show contradictory results. An Empirical Study of Lobe / Schenk ( 2008) works out the determinants of the use of fairness opinions in Germany, Switzerland and Austria. The legal protection of the Management Board and Supervisory Board of target companies play an important role in Germany, while in addition conflicts of interest be disclosed in a fairness opinion in Switzerland. In all three countries also shows that fairness opinions are perceived by target companies in the capital market, and therefore provide additional information.

Swell

  • Ader, Ch / Schwetzler, B. HHL / D & P Fairness Opinion Monitor:. Annual Report Germany 2007, http://www.finexpert.info/fileadmin/user_upload/downloads/pdf/FO-Monitor_2007.pdf
  • Ader, Ch. / Schwetzler. Example: HHL / D & P Fairness Opinion Monitor 2008, In: Financial Operation 2009, pp. 81-85
  • Böhm, Oliver / Siebert, Hilmar: The Fairness Opinion as a means of quality assurance in the transaction process. In essence, Paul, Peter (ed.): focal points of the audit and tax law - guidance for practice. Straubing: Beck, 2008, ISBN 978-3-931578-22-0, pp. 149-170.
  • Borowicz, F.: Fairness Opinions: fig leaf or serious opinions? In: M & A Review, No. 6, 2005, pp. 253-158.
  • DFVA financial papers: Principles for Fairness Opinions, 07/ 08, http://www.dvfa.de/files/die_dvfa/kommissionen/application/pdf/grundsaetze_fairness_opinions.pdf
  • Essler, W / Lobe, S / Röder, K. ( ed.): .. Fairness Opinion - Fundamentals and Applications, Poeschel, 2008, ISBN 978-3-7910-2725-8
  • Lamura, P / Rapp, M / Schwetzler, B / Wilms, A.:. .. The Certification Hypothesis of Fairness Opinions, 2009 http://ssrn.com/abstract=1366304
  • Lobe, S / Essler, W / Roeder, K.:. . What requirements do German directors and chairman of fairness opinions? In: The Auditing, Vol 60, 2007, volume 11, pp. 468 - 477
  • Lobe, S / Schenk, N.-C.. Fairness Opinions and Capital Markets: Evidence from Germany, Switzerland and Austria, 2008 http://ssrn.com/abstract=1071722
  • Beautiful Fields, L.: company valuations in the context of fairness opinions: An addressee -related investigation, main, 2007, ISBN 978-3-2580-7283-8
  • Schwetzler, B.: Principles for the preparation of fairness opinions - the standards of the DVFA. . . In: Essler, W / Lobe, S / Röder, K. ( ed.) Fairness Opinions, Stuttgart 2008, pp. 51 - 71
  • Schwetzler, B.: fairness opinions and rankings of investment banks in M & A Review, No. 1, 2009 p 1-7.
  • Schwetzler, B / spreader, C / Salcher, M / Bornemann, M.:. .. Importance of Fairness Opinion for the German market transaction, in: Financial Operation, 2005, pp. 106-117.
  • Westhoff, AO: The Fairness Opinion, IDW, 2006, ISBN 978-3-8021-1246-1
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