It would be easy to assume that “fair market value” and “fairness opinion” mean the same thing. To some degree you can base a fairness opinion on fair market value. However, the similarities end there.
Let’s assume that you are the president of a privately held company that has several investors/stockholders. The company goes up for sale. You, as president, are responsible for the sale. You find a buyer, the deal is ready to close, and then one of the minority stockholders claims that the price is too low. Or, what if the deal closes and then the minority stockholder decides to sue you, claiming that the selling price was too low. A fairness opinion may protect you from any litigation.
A fairness opinion is a letter containing the factors or items considered, with a conclusion on the fairness of the selling price along with the limitations. The limitations usually cite that others have provided all the information in the letter. The expert relied on information furnished by management and has not valued the actual assets of the business.
An expert in business valuation can prepare this fairness opinion letter. The content of the letter is limited to determining a fair price based on the opinion of the expert. It does not provide any opinion on the deal itself. The letter does not contain any recommendations on whether to accept or reject the deal.
The board of directors will often use a fairness opinion in the sale of public companies. It helps support the fact that the board is protecting the interests of the stockholders as far as the selling price. The fairness opinion will serve the same purpose in a privately held company if there are minority shareholders or family members who may elect to challenge the selling price.