Fairness Opinion

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Fairness opinions are statements by an independent expert on the assessment of a planned company ( mergers & acquisitions ) from the shareholders' perspective .

While the fairness opinion only includes the review of publicly available documents, in the due diligence process the strategies and books of the companies concerned are subjected to an in-depth examination and assessed.

Components

A fairness opinion usually consists of two parts:

  • the Valuation Memorandum (Eng./ Latin, dt. about value assessment ), in which the eventual transaction, the information bases used, valuation procedures and the derivation of the judgment are presented in detail, and
  • the Opinion Letter (written report), which briefly contains the final assessment of the transaction.

Application and publicity

Management boards or supervisory boards commission fairness opinions from investment banks or large accounting firms . They prepare an expert opinion or a written statement. In this context, an offer to buy or sell in the form of money and / or securities is specifically dealt with. The addressee of the fairness opinion is initially the commissioning executive board / supervisory board. Whether a fairness opinion should also be made available to shareholders and, if so, to what extent is regulated differently at national level. In Germany there is no obligation to publish; if companies publish voluntarily, only the opinion letter is made available.

Goals and content

The commissioning of fairness opinions by corporate bodies can pursue three goals:

  • legal protection of the management board and supervisory board,
  • the conviction of skeptical shareholders who, if they reject it, endanger the transaction and
  • receiving additional information about the transaction.

In a representative empirical survey study for Germany (CDAX companies), Lobe / Essler / Röder (2007) show that the first and third points in particular play a role in German practice. From a theoretical point of view, LaMura / Rapp / Schwetzler / Wilms (2009) have shown that fairness opinions in the interests of shareholders can also take on a certification function and can reduce information asymmetries in the context of corporate transactions. The content and meaningfulness of the published fairness opinions differ greatly: A survey of German transactions in 2007 by Aders / Schwetzler (2008) shows that, in addition to assessing the transaction, there is usually a brief overview of the methods used for assessment and valuation becomes. As a professional association of investment professionals in Germany, the DVFA has developed principles for fairness opinions, which formulate requirements for the content and publicity of fairness opinions. The continuation of the above survey for 2008 by Aders / Schwetzler (2009) shows that the standards developed are being accepted in practice.

criticism

The independence of the experts (investment banks, etc.) is controversial . A fairness opinion can only properly assess the advantageousness of a transaction if experts are independent of other considerations in their considerations. Investment banks also repeatedly advise the buying or selling company in addition to drawing up the fairness opinion. The consulting fees are often linked to the conclusion of the transaction. This can easily lead to conflicts of interest. If such conflicts of interest cannot always be avoided, they should at least be disclosed in the opinion letter. According to the DVFA principles mentioned above, an explicit statement about any conflicts of interest should always be included. However, this is currently not always the case: according to the study by Aders / Schwetzler (2008), 1/3 of the published fairness opinions contain no statement as to whether the author is also providing advice on the transaction.

Determinants and capital market relevance

A number of studies are available for the USA with regard to the relevance of the fairness opinion for the capital market, which come to contradicting results. An empirical study by 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 Switzerland conflicts of interest are also disclosed in a fairness opinion. In all three countries it can also be seen that fairness opinions are perceived by target companies on the capital market and therefore provide additional information.

swell

  • Ch. Aders, B. Schwetzler: HHL / D & P Fairness Opinion Monitor: Annual Report Germany 2007. (finexpert.info)
  • Ch. Aders, B. Schwetzler: HHL / D & P Fairness Opinion Monitor 2008. In: Finanzbetrieb. 2009, pp. 81-85.
  • Oliver Böhm, Hilmar Siebert: The Fairness Opinion as a means of quality assurance in the transaction process. In: Paul Peter Kern (Ed.): Focal points of auditing and tax law - orientation aids for practice. Beck, Straubing 2008, ISBN 978-3-931578-22-0 , pp. 149-170.
  • F. Borowicz: Fairness Opinions: Fig leaf or serious opinion? In: M&A Review. No. 6, 2005, pp. 253-158.
  • DFVA Finanzschriften: Principles for Fairness Opinions. 07/08. ( dvfa.de ( Memento from February 15, 2010 in the Internet Archive ))
  • W. Essler, S. Lobe, K. Röder (Ed.): Fairness Opinion - Basics and Application. Schäffer-Poeschel, 2008, ISBN 978-3-7910-2725-8 .
  • P. LaMura, M. Rapp, B. Schwetzler, A. Wilms: The Certification Hypothesis of Fairness Opinions. 2009, (ssrn.com)
  • S. Lobe, W. Essler, K. Röder: What requirements do German board members and supervisory board chairmen place on fairness opinions? In: The auditing. 60th vol., Issue 11, 2007, pp. 468-477.
  • S. Lobe, N.-C. Schenk: Fairness Opinions and Capital Markets: Evidence from Germany, Switzerland and Austria. 2008. (ssrn.com)
  • L. Schönefelder: Company evaluations in the context of fairness opinions: an addressee-related study. Haupt, 2007, ISBN 978-3-258-07283-8 .
  • B. Schwetzler: Principles for the preparation of fairness opinions - the standards of the DVFA. In: W. Essler, S. Lobe, K. Röder (Eds.) Fairness Opinions. Stuttgart 2008, pp. 51-71.
  • B. Schwetzler: Fairness Opinions and Rankings from Investment Banks . In: M&A Review. No. 1, 2009, pp. 1-7.
  • B. Schwetzler, C. Aders, M. Salcher, M. Bornemann: The importance of the fairness opinion for the German transaction market. In: Financial Operations. 2005, pp. 106-117.
  • AO Westhoff: The Fairness Opinion. IDW, 2006, ISBN 3-8021-1246-6

Individual evidence

  1. ↑ Andreas Böhme: How much was the EnBW package worth? . In: badische-zeitung.de, Nachrichten, Südwest, February 17, 2012 (February 19, 2012)