Fair Value Assessment
Fairness Opinions
A fairness opinion is generally a short letter from an independent financial advisor addressed to the board of directors. It concludes on whether or not a proposed transaction is fair to the security holders from a financial point of view. However, in contrast to a formal valuation, a fairness opinion does not conclude whether the highest price is being obtained in a transaction.
Fairness opinions are usually sought in conjunction with a formal valuation requirement under Ontario Securities Commission (OSC) Rule 61-501. More generally, fairness opinions are requested in any situation where there is a potential conflict of interest or the decision makers are seeking independent expertise in discharging their fiduciary duties.
Although there is no formal legal definition of a fairness opinion, the members of the Canadian Institute of Chartered Business Valuators (CICBV) and the members of the Investment Dealers Association (IDA) have codified the key elements and disclosures required, in their respective standards.
Formal Valuations
The regulatory requirement for a formal valuation arises in transactions involving publicly traded companies where there is an actual or perceived conflict of interest. Those transactions generally include: insider bids, issuer bids, business combinations, and related party transactions.
Rule 61-501 and its companion policy 61-501CP of the Ontario Securities Commission (OSC), as well as the policy statement Q-27 and its companion policy Q-27 of Autorité des marchés financiers du Québec, address the above noted types of transactions, the requirement for an independent and qualified valuator, and disclosure standards in a formal valuation.
The members of the Canadian Institute of Chartered Business Valuators (CICBV) and the members of the Investment Dealers Association (IDA) have codified the key elements and disclosures required in a formal valuation, in their respective standards of practice.
How We Can Help
BDO can provide Fairness Opinions and Formal Valuations to clients in a range of industries and sizes.
