Fairness Opinion vs. Financial Advisor
Hey everyone,
Was wondering if someone could explain to me the subtleties associated when an IB acts as a "financial advisor" in an M&A deal as opposed to a bank which renders a fairness opinion. In a press release I was reading there were three groups the acquirer, the acquisition/target, and then some transaction committee in which the bank I was looking at acted as the financial advisor to the committee while Lazard rendered a fairness opinion. If one assumes the committee is comprised of members of both companies why would the committee itself need a financial advisor AND also require a fairness opinion?
BTW is a third party "committee" usually formed in the event of an acquisition/merger?
Thanks.
I think the FO comes into play for a public company, as it is a required document that needs to be filed with the SEC along with others. It is usually requested by the Board of Directors of that company that is given an offer in order for them to fulfill their fiduciary duty 100%. It used to be optional I think but then mandated by some 2003 regulation, if I remember correctly, not sure though. I would assume they would go with a different bank than the adviser because they want a real unbiased opinion and no conflicts of interest.
George, exactly right, with one caveat. Managements use fairness opinions to protect themselves from lawsutis and fraudulent transfer claims, and everyone's aware that its essentially a rubber stamp. FO's are comprised of DCF, Comps, and accretion/dultion analyses, in addition to a more qualitative strategic rationale, and its the same ones the advisors provide as you can imagine you can make the analysis say whatever you want. In reality, the only time you'll see an FO question a deal's fairness is when the management is trying to defend against an unwanted takeover.
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