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Fairness
and Solvency Opinions
Fairness Opinions
Even the appearance of a conflict of interest can be a deal-killer, especially in situations involving major equity and/or debt transactions. It may even lead to litigation, an outcome no party to a deal generally relishes. The most effective proactive strategy to prevent that from happening is to obtain a fairness opinion before completing certain transactions.
A fairness opinion provides an independent objective analysis of a proposed deal's financial aspects from the point of view of one or more of the parties to the transaction. Any number of factors in deals involving both public and private companies can trigger the need for a fairness opinion. These documents are frequently used to protect the interests of company directors, stockholders, investors and involved parties with any kind of fiduciary responsibility. Fairness opinions are often requested in deals involving public offerings, leveraged buyouts or major refinancing/restructuring.
Appraisal Economics has the personnel, expertise and research
resources to provide the assurance of fairness to participants
which these types of deals require. We are highly experienced
in mergers, acquisitions, divestitures and related services.
We have worked on many such transactions, both domestically
and internationally. A fairness opinion from Appraisal Economics
is the product of a comprehensive analysis that includes a
thorough review of the terms and structure of the proposed
transaction.
Tight deadlines and rapid turn-around are never a problem
for Appraisal Economics. The combination of experience, in-depth
analysis and sterling credentials we bring to a fairness opinion
can help to discourage challenges from third parties. Not
surprisingly, a wide range of both public and private corporations
and board of directors regularly call on us to provide them
with independent opinions regarding acquisitions, divestitures,
management buyouts and similar major transactions.
A sampling of the kinds of transactions in which Appraisal Economics has rendered fairness opinions includes:
The acquisition of a health care company specializing in the insurance of doctors
A non-compete agreement included in the $1 billion acquisition of a major franchise organization
The acquisition of a manufacturing company which produces components for the wireless communications industry
The acquisition of an individual product line in the pharmaceutical industry
The acquisition of a hotel chain which included a number of casinos
Solvency Opinions
A secured lender assumes it enjoys a priority position in the event of a bankruptcy filing by one of its debtors, and rightly so. However, a lender might find that priority position canceled by the bankruptcy court unless it can present clear evidence of future solvency. The only effective means for a lender to protect its secured position in the event of a debtor's bankruptcy is with a solvency opinion.
In the past, accounting firms were permitted to issue solvency letters, but that is no longer the case. Accounting analyses using "agreed-upon procedures" and historical performance review do not meet the test of clear and convincing evidence of future solvency now demanded by the bankruptcy court.
In contrast, the solvency opinions provided by Appraisal Economics represent the kind of detailed analysis of critical financial variables the court requires. Our primary focus is to demonstrate a sufficient cash flow to operate the business and service debt, even under adverse conditions. Not coincidentally, that is also the bankruptcy court's focus.
As part of our analysis we conduct a detailed review of critical
business risks, contingent liabilities, and the market value
of assets. Among the resolutions that our completed solvency
opinions reach are:
That the fair market value of the company's assets would exceed its stated liabilities and identified contingent liabilities
That the company would be "able to pay its debts as they became absolute and mature"
That the capital remaining in the company would be reasonable for the business in which it is engaged
Appraisal Economics has provided clients with solvency opinions covering a wide variety of circumstances--from the $800 million acquisition of an international scientific instruments manufacturer to deals involving the acquisitions of a cosmetics company, an automotive parts chain and a sporting goods retailer.
More Information about Fairness Opinion
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