Fairness opinions: when boards need them and what they cover

A fairness opinion is a written conclusion, prepared by an independent advisor, on whether the financial terms of a proposed transaction are fair from a financial point of view to a specified party — typically the public shareholders, a special committee, or the board of directors.

When boards typically retain a fairness opinion

Common contexts include:

• Going-private transactions and management buy-outs
• Related-party or insider transactions where conflicts of interest are present
• Plans of arrangement or amalgamations under Canadian corporate law
• Reverse takeovers and qualifying transactions involving public issuers
• Material asset sales or business-line divestitures

In Canadian public-company contexts, MI 61-101 establishes specific requirements around insider bids, issuer bids, business combinations, and related-party transactions — including, in many cases, formal valuations prepared under the rule's standards. A fairness opinion is a related but distinct instrument.

What the opinion covers — and what it does not

A fairness opinion expresses a view on financial fairness as of a specified date, typically based on:

• Public and non-public information made available to the opinion provider
• Discussions with management and, where relevant, the counterparty
• Selected market and transaction comparables, financial projections, and other inputs the provider considers relevant

The opinion does not address:

• Strategic merits of the transaction (whether to do it at all)
• Legal, tax, accounting, or regulatory matters
• Future trading prices of any securities involved
• Alternatives the board may not have asked the provider to consider

Boards sometimes treat the opinion letter as a check-the-box deliverable. It isn't. The strongest defense the opinion provides is when the underlying analysis has been challenged in good faith during the engagement, and when the scope, assumptions, and conflicts have been documented clearly.

Questions a board should ask before retaining a provider

1. Is the provider genuinely independent of the counterparties, advisors, and the transaction itself? How is independence documented?
2. What is the scope — and what is explicitly excluded?
3. Is the fee structured to avoid creating an incentive to issue any particular conclusion?
4. Who internally will review the work before the letter is signed?
5. Will the opinion be relied upon by the board, the special committee, or the shareholders directly?

A well-run engagement makes the answers to these questions visible to the board from the outset.

This article is general information and is not a substitute for legal, tax, or financial advice tailored to a specific transaction. Boards considering a fairness opinion should engage qualified Canadian legal counsel alongside the financial advisor.