Duff & Phelps Study Proves Value of Fairness Opinions for Corporate Boards and Special Committees
Majority of Fairness Opinions Are Robust, Offer Useful Advice
NEW YORK – March 28, 2017 – Most fairness opinions use a robust set of methodologies to produce a useful range of valuations, according to a new study of more than 3,000 publicly disclosed fairness opinions by Duff & Phelps, the premier global valuation and corporate finance advisor.
This conclusion disproves claims made by critics who – triggered by certain well-publicized transactions – argue that fairness opinions provide little utility for boards analyzing potential transactions, either because the valuation range in the opinion appears overly broad, or the analysis is mechanical and is produced with little rigor. This new study, ”In Defense of Fairness Opinions – An Empirical Review of Ten Years of Data,” represents Duff & Phelps’ effort to answer the critics through analysis, proving that those instances are outliers, caused more by peculiarities in circumstances than faults in the process.
Duff & Phelps conducted a thorough analysis of more than 3,000 fairness opinions filed with the U.S. Securities and Exchange Commission on forms 14D and DEFM14A during the 10-year period ending in 2016. Key findings include:
- Value for Corporate Boards: The vast majority of fairness opinions deliver a range of valuations that is sufficiently narrow – within 10 to 15 percentage points on either side of a midpoint – to serve as a valuable tool for evaluating purchase offers.
- Sophistication in Multiple Methodologies: Fairness opinion advisors provide multiple perspectives and analyses in assessing valuations: 91 percent of the fairness opinions reviewed used multiple methodologies to arrive at valuations. In 75 percent of the opinions, advisors used three or more methodologies. In 43 percent of the filings we analyzed, fairness opinion advisors presented multiple cases of discounted cash flow analysis.
- DCF Reliability: Discounted cash flows provided the narrowest range of values among the prevailing methodologies in the fairness opinions reviewed.
- Choice of Provider Matters: The choice of an advisor impacts the precision of a given fairness opinion. Among the most active providers, the tightest average range, at 23 percentage points, is nearly half the broadest average range of 41 percentage points.
The analysis demonstrates that fairness opinion providers use robust, sophisticated methods to reach valuations that provide a reliable means for corporate boards and executives to evaluate purchase offers.
Christopher Janssen, Head of Duff & Phelps’ Transaction Opinions Practice, said, “Directors who seek fairness opinions have long been left to rely on their own intuition and experience in scrutinizing valuation estimates. The data in our report provides them with a set of benchmarks, drawn from federal filings, for comparison. They’ll now know when a fairness opinion’s estimate falls outside the average valuation range against the offer price for similar sized deals, and by what degree. Those data points should empower them to ask more informed questions, which can only improve the process of deliberating a purchase offer.”
Bob Bartell, Global Head of Corporate Finance at Duff & Phelps continued, “Corporate boards and special committees need independent, objective financial advice on which they can confidently rely. We don’t expect our study to put an end to the debate around fairness opinions. But we are committed to elevating that debate by injecting data where there has only been conjecture, by replacing the anecdotal with the empirical and by better equipping boards to make informed decisions.”
About Duff & Phelps
Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, dispute consulting, M&A, real estate, restructuring and compliance and regulatory consulting. The firm’s more than 2,000 employees serve a diverse range of clients across the world. For more information, visit www.duffandphelps.com.
M&A advisory, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of Duff & Phelps Securities, LLC. M&A advisory and capital raising services in Canada are provided by Duff & Phelps Securities Canada Ltd., a registered Exempt Market Dealer. M&A advisory and capital raising services in the United Kingdom and across Europe are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial Conduct Authority. In Germany M&A advisory and capital raising services are also provided by Duff & Phelps GmbH, which is a Tied Agent of DPSL. Valuation Advisory Services in India are provided by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.
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