Reasons for a Fairness Opinion
- Management buy-outs
- Independent valuation for a corporate acquisition (2nd opinion)
- Corporate M&A transactions - acquisition and sale
- Acquisition and sale by private equity or venture capital investors
Valuation Processes & Preparation
In the preparation of a fairness opinion, we use the well-known German standards published by the Institute of Public Auditors in Germany [Institut der Wirtschaftsprüfer, IDW] or the Deutsche Vereinigung für Finanzanalysten GmbH [German Association for Financial Analysts]. Usually, multiple methods are used to determine the range of offer prices (IDW S8 or DVFA standards). First approach for valuation: Regularly different corporate value multiples. The possible price of a target company is estimated on the basis of comparable transactions or exchange prices of comparable companies in the same industry. Various key metrics are used to estimate the first range with the aid of these multiples. The second step usually involves the significantly more complex discounted cash flow method – multiple scenarios are derived from the corporate planning. The capital costs of the company are usually calculated on the basis of the generally recognized capital asset pricing model, with recourse to capital market data. A range of possible corporate values is calculated in turn on the basis of the planning scenarios and the capital costs. Ultimately, the results from the discounted cash flow and multiple methods are compared with the submitted offer price. If this offer price is within the calculated range, it is qualified as fair.
Results of the Fairness Opinion
The results of the valuation are divided into two parts. In the so-called opinion letter, the expert just makes a statement on the value in general, on the methods used for determining the reasonable value, and ultimately also whether a fair transaction price is being offered. The opinion letter is published at capital market companies. The opinion also simultaneously serves as a communication instrument for critical shareholders. The valuation memorandum is not publicly accessible – this includes the documentation regarding the determined corporate valuation bandwidths, the corporate planning, and consequently competition-relevant data. For the respective corporate board, it is necessary to understand and check the valuation concept here. Only in this way will the requirements under the business judgment rule and section 93 of the German Joint Stock Corporation Act [Aktiengesetz, AktG] be satisfied with regard to documentation of the fulfillment of due diligence duties.
Fairness Opinion – a Service Provided by FAS AG
FAS AG brings wide-ranging expertise and many years of experience to the preparation of an independent fairness opinion and subsequent consulting, particularly with regard to the sale or purchase of a company.