In Defense of Fairness Opinions – Empirical Review of Ten Years of Data – A Valuable Tool for Boards
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With a Reputation Built Over Decades, Duff & Phelps’ Fairness Opinion Practice Delivers High Quality Financial Advice and Opinions That Withstand the Most Rigorous Scrutiny.
This report is a compilation, review and analysis of more than 3,000 publicly disclosed fairness opinions, providing a set of benchmarks, drawn from federal filings, for comparison.
Board of Directors seeking fairness opinions have long been left to rely on their own intuition and experience in scrutinizing valuation estimates. Our report empowers directors to ask more informed questions, which can only improve the process of deliberating a purchase offer. They’ll now know when a fairness opinion’s estimate falls outside the average valuation range against the offer price for similar-sized deals.
A Valuable Tool for Boards
To test whether wide ranges are pervasive, we analyzed publicly disclosed fairness analyses over the last ten years. Our analysis confirms that on average, fairness opinions deliver a range of valuations that is sufficiently narrow to serve as a valuable tool in evaluating purchase offers. And the average range grows narrower as deal size grows larger. Among deals we analyzed that carried a value of $10 billion or more, DCF analyses produced average price ranges between 78 percent and 106 percent of the offer price. Large-cap companies typically are more diversified and established, with more stable and predictable cash flows and broader equity-analyst coverage. Armed with multiple, reliable sets of financial projections and a variety of perspectives on the company’s future performance, fairness opinion advisors can be expected to produce more precise valuation ranges than when this information is absent.
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