Fairness Opinion Valuation Services

When a Fairness Opinion Is Warranted

There is no general statutory requirement for a fairness opinion in a private transaction. The question is whether the circumstances create a risk the board should manage.

Conflicts on Both Sides of the Deal

The clearest case. Where a director, a controlling shareholder, or a related entity is a counterparty, the board cannot rely on the negotiation itself to have produced a market outcome, because the party on the other side was not adverse in the ordinary way.

Common situations:

• Management buy-outs — Where the management team acquiring the business also holds the information about what it is worth
• Related party asset transfers — Property, IP or a business unit moving between entities under common control or ownership
• Shareholder buy-outs — Where the company or continuing shareholders acquire a departing shareholder’s stake
• Founder or director transactions — Sale of an asset to or from a director, or a lease, licence or service arrangement on non-arm’s length terms
• Intra-group restructures where different entities have different beneficial owners

Minority Shareholders Who Cannot Negotiate

Where a transaction is put to minority shareholders on terms negotiated by others, the minority is being asked to accept a price it had no part in setting. An independent opinion is what allows them to assess it — and what protects the directors who recommended it.

Fiduciary and Trustee Decisions

Trustees of superannuation funds, responsible entities of managed investment schemes, and trustees of family and testamentary trusts hold assets for beneficiaries and must act in their interests. Where a trustee acquires, disposes of or transfers a material asset — particularly to or from a related party — an independent opinion on the fairness of the terms is the standard evidence that the duty was discharged.

Employee and Incentive Equity Transactions

Where employees are being offered equity, or where equity is being bought back from departing employees, an independent view on the price protects both sides — and interacts with the Division 83A market value requirements and AASB 2 grant-date fair value.

Transactions Likely to Be Scrutinised Later

Estate and succession transfers, transactions preceding an insolvency, dealings during a shareholder dispute, and transactions that will be examined in a subsequent sale process or capital raise. Where you can reasonably expect the terms to be questioned, contemporaneous independent evidence is worth far more than a reconstruction afterwards.

What a Fairness Opinion Covers — and What It Does Not

The Scope

A fairness opinion addresses whether the financial terms of the transaction are fair, from the perspective of the specified party. In practice that involves:

• An independent valuation of the subject asset, business or securities, expressed as a range
• An assessment of the consideration being offered or paid, valued on the basis actually received where it is non-cash
• A comparison of the two
• Consideration of the non-price terms that bear on financial fairness — earn-out structures, deferred consideration, escrow, security, restraints, ongoing service arrangements
• A stated conclusion, with reasons

The Limits — Which Should Be Stated Explicitly

A fairness opinion is not:

• A recommendation to proceed. Whether the transaction is commercially or strategically sensible is a board judgement. The opinion addresses the financial terms only.
• A statement that the price is the best obtainable. Fairness is a range, not a point. A price at the low end of a fair range is still fair, and a better price may have been achievable through a different process.
• A guarantee against future performance. The opinion is as at its date, on the information available.
• A substitute for due diligence. The opinion generally relies on information provided and does not verify it independently unless the scope expressly extends to that.
• A solvency opinion. Whether the company can fund the transaction and remain solvent is a separate question, and where it matters it needs to be addressed separately.
• An independent expert report. Where a statutory report is required, a fairness opinion does not discharge that obligation.

Setting these limits out clearly in the opinion is not defensive boilerplate. An opinion that overstates its own scope is less useful to a board, because it is easier to attack.

The Analytical Framework

Valuing the Subject

The valuation applies the methods appropriate to the asset — capitalisation of earnings, discounted cash flow, comparable transactions and trading multiples, sum of the parts, or net asset value — with the selection reasoned and the inputs sourced.

Two points carry particular weight in a fairness context.

The basis must match the transaction. Where control is passing, a control basis applies. Where a minority parcel is changing hands between existing shareholders, whether a minority discount is appropriate depends on the circumstances and needs to be reasoned rather than applied by convention — the same question that arises in shareholder disputes, and with the same sensitivity.

A range, not a point. Fairness is assessed against a range, and the opinion should state where within that range the consideration falls. An opinion resting on a single figure implies a precision the analysis does not support and provides the board with less useful information.

Valuing the Consideration

Where consideration is cash, this is straightforward. Where it is not, it is where opinions most often go wrong.

Scrip must be valued on the basis actually received — a minority parcel, typically illiquid if the issuer is unlisted, often subject to escrow or transfer restrictions. Taking scrip at its notional issue price overstates what the recipient is getting.

Deferred consideration requires discounting for time and for the credit risk of the payer.

Earn-outs require probability-weighted assessment across the range of outcomes, not the headline maximum — and consideration of whether the metric can be suppressed by the conduct of the party controlling the business post-completion.

Assumed liabilities and non-cash benefits — Debt assumed, ongoing employment or consultancy arrangements, retained interests, and restraint payments all form part of the economic consideration and need to be brought into the comparison.

Non-Price Terms Affecting Financial Fairness

Terms that are not price but affect value: the working capital and net debt mechanism, warranty and indemnity coverage and its caps, security for deferred amounts, conditions precedent that shift completion risk, and restraint or service obligations imposed on the vendor. Where these are material, an opinion silent on them has assessed only part of the bargain.

Alternatives and Process

Where relevant, and where the board has asked for it, the opinion may address whether alternatives were available and what a market process might have produced. This is closer to advisory work than to valuation and needs to be scoped explicitly, but it is frequently the question the board actually wants answered — particularly where a related party transaction was never market-tested.

Independence — The Substance of the Opinion

An opinion is worth what its independence is worth. The requirements applied to statutory independent expert reports under RG 112 are the sensible benchmark even where they do not strictly apply.

No interest in the outcome — No shareholding or other interest in either party, held by the firm or the individuals involved.

No contingent fee — The fee must not depend on the transaction completing or on the conclusion reached. A success fee is disqualifying, and it is the most common reason a board-obtained opinion turns out to be worthless when tested.

No prior involvement in the transaction — The adviser who structured, negotiated or priced the transaction cannot then opine on its fairness. This is the most frequent practical problem: the corporate adviser running the deal is not the person who can provide the fairness opinion on it.

Relationships disclosed — Prior and concurrent engagements for either party, including audit, tax and advisory work, assessed and disclosed.

Appointed by the right party — By the board, the independent directors, a board committee, or the trustee — not by the counterparty or by the party whose conduct the opinion is intended to test.

Common Failure Points

• The deal adviser provides the opinion, eliminating its independence and its evidentiary value
• Fee contingent on completion, which disqualifies the opinion when it is most needed
• Scrip or earn-out consideration taken at headline value, overstating what the recipient receives
• A point estimate rather than a range, providing the board with a conclusion it cannot interrogate
• Non-price terms ignored, assessing the price but not the bargain
• Scope overstated — an opinion that reads as a recommendation to proceed, or as verification of information it never verified
• Minority discount applied or omitted by convention rather than reasoned from the circumstances
• Obtained after the board has committed, which protects nobody
• Statutory requirement missed — a fairness opinion provided where an independent expert report was required
• Appointed by the conflicted party, undermining the exercise from the start

InteleK’s Approach to Fairness Opinions

Our accredited valuers provide independent opinions on transaction terms for boards, independent directors and fiduciaries. Here’s what sets our process apart:

Independent in Substance — Fixed fee, not contingent on the transaction or the conclusion. No interest in either party. No prior involvement in structuring or pricing the transaction. Where our analysis does not support the terms, we say so, which is the only circumstance in which the opinion has any value.

Consideration Valued as Received — Scrip on a minority basis with illiquidity and escrow restrictions reflected, deferred amounts discounted for time and payer credit risk, earn-outs probability-weighted across the outcome range rather than taken at their headline.

Range Stated, With the Consideration Located Within It — So the board knows not just whether the terms are fair but where in the range they sit, and what would have to change for the conclusion to change.

Scope Defined Precisely — What the opinion addresses and what it does not, stated in the opinion itself. We do not describe the opinion as more than it is, because an overstated scope is what fails under scrutiny.

Non-Price Terms Brought In — Price mechanism, warranty coverage and caps, security, restraints and service arrangements assessed where they materially affect financial fairness.

Statutory Position Established First — Before scoping, we establish with your counsel whether the transaction requires a statutory independent expert report rather than a fairness opinion. Providing the wrong instrument is a failure that only becomes apparent when it matters.

Board-Facing Deliverables — Written for directors and trustees, structured so the reasoning can be followed and the conclusion interrogated at the board table.

Obtained Before Commitment — We would rather be engaged before the board resolves than after. An opinion obtained to document a decision already made provides materially less protection than one that informed it.

Working With Your Advisers — We work alongside your corporate adviser, transaction counsel and audit committee. The deal adviser runs the transaction; the fairness opinion is the independent check on it.