In today’s litigious society, boards of directors and senior management are increasingly at risk of lawsuits from all corners.
Shareholders, political bodies and regulators are constantly involved in court battles with corporations and their executives. Because of this, boards must obtain adequate and well-documented opinions from objective sources regarding the fairness of company transactions.
Fairness Opinions
Previously called “comfort letters,” fairness opinions are vital for a company, particularly in transactions where these opinions will be disclosed to shareholders. Without these, a board’s risk of corporate malfeasance lawsuits is greatly increased.
The process for selecting a valuation firm, the manner in which an opinion is prepared, and how the opinion is presented to a board of directors can make a significant difference in how well the transaction will stand up to legal challenge. There is a significant amount of know-how to be considered in this area, which can mean the difference between being protected or not. BVC’s fairness opinions are credible, authoritative, well-documented, and designed to offset and minimize the risk of legal challenge.
A fairness opinion simply states that a proposed transaction is fair from a financial point of view.
It is designed to objectively show that there are numbers and logic behind a board’s decision and they were acting in good faith in executing a transaction. Fairness opinions are provided to boards of directors for the following specific transaction types:
- Mergers and acquisitions
- Leveraged buyouts
- Management buyouts
- Corporate reorganizations
- Corporate divestitures
- Joint ventures
- Financial restructuring
- Affiliated transactions
- Going-private transactions
BVC goes through a precise series of steps to ensure that its fairness opinion will stand up to the most intense scrutiny from regulators or shareholders, these steps include:
- Valuation of the company, including specific valuation of equity classes or debt securities
- Valuation of the consideration if other than cash
- Assessment of the fairness of the proposed transaction price from a financial point of view by comparing the indicated range of fair value to our analysis of the transaction price
- Involvement and role undertaken by the board
- Structure of the transaction
- Likelihood of transaction closing (e.g., regulatory and financing considerations)
- Thorough analysis/assessment of the offer and the opportunity to improve terms
- Form of the consideration
Our procedures are well-documented and consistent with current practices within the profession and current regulations.
All fairness opinions include reviews by an independent committee of senior-level BVC experts.
Solvency Opinions
Prior to consummating a transaction, one of the key issues is the solvency of the entity in question. For obvious reasons, the acquisition of an insolvent entity can have repercussions on the company acquiring the asset.
Solvency opinions provide a level of reassurance to stakeholders in a transaction as to whether or not an entity is solvent, either before or after a transaction. Lenders, financial advisors, attorneys, boards of directors and shareholders who are considering acquisitions, mergers or recapitalizations must rely on an independent, experienced firm to provide an objective solvency opinion. BVC is an industry leader in solvency opinions with deep expertise in determining and applying the accepted approaches used to determine solvency.
BVC’s solvency opinions involve comprehensive due diligence and analysis of the transaction, the company, the economy, industry-specific forecasts as well as management forecasts.
- Dividend recapitalizations
- Leveraged buyouts (LBOs)
- Management buyouts (MBOs)
- Share buyback
- Spin-offs
- Restructuring
- Going private
A solvency analysis requires the following key tests, developed from judicial opinions and statutes:
Balance Sheet Test
Do the fair value and present fair salable value of the company’s aggregate assets exceed its aggregate liabilities?
Cash Flow Test
Is the projected cash flow sufficient to repay debts and other obligations as they come due?
Capital Adequacy Test
Will the entity have adequate capital with which to conduct its business?
In addition, certain state corporate statutes require the inclusion of the following test in the analysis:
Shareholder Distribution Test
Does the present fair salable value of the assets over the probable value of the liabilities exceed the value of the distribution plus the stated capital?
Over the last decade, BVC has provided solvency opinions involving some of the largest banks and private equity firms in the United States. We are experts in the field and have established a reputation for authoritative and well-supported solvency opinions. Our experienced team of experts performs comprehensive tests and due diligence procedures to ensure our clients are truly protected and have the information they need.
