Newspaper article THE JOURNAL RECORD

Fairness Opinion a Vital Aid to Selling a Business

Newspaper article THE JOURNAL RECORD

Fairness Opinion a Vital Aid to Selling a Business

Article excerpt

It's always a precarious time when owners of small- and medium-sized businesses decide to seek a buyer, and it's an equally difficult period for their stockholders.

The basic question that emerges: What is the company worth?

This can be determined by obtaining a fairness opinion, which provides independent verification of the value of a business or its stock. Prepared by an investment banker, a fairness opinion is evidence that owners/directors have used sound business judgment in arriving at a fair price for the company or its assets. It's a must.

Fairness opinions are most useful when they are the product of thorough research by independent investment bankers. The fairness opinion should be as explicit as possible in discussing the factors considered and the processes used by the banker to review a company's current financial condition, as well as its historical financial record.

The investment banker should have the expert knowledge to review a company's forecasts and the underlying assumptions supporting them, and to compare them with industry and economic trends. The investment banking firm should visit a company's principal offices and discuss with the firm's executive officers its operations, general prospects and overall outlook.

``We review all the key financial documents, including the balance sheet and income statements,'' says Jay Cooke, president of First New York Capital, a New York investment banking firm that has rendered many fairness opinions for companies.

``From this as well as from interviews with management, accountants and even competitors, we gather information on the company's operating history, contingent liabilities and future operations," he said. "From this date, we appraise the company according to a number of formulas, such as book value and earnings multiples, and then come up with a figure that reflects all of these methods of valuation.''

Increasingly important in today's litigious society, fairness opinions can help protect corporate directors - even those serving in the smallest companies - from charges that they did not act in accordance with their duties.

``Whether a company is public or private, a valuation is vital because a question of fairness often comes down to the question of value,'' Cooke says. …

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