TRANSACTION SERVICES


Fairness Opinions

A fairness opinion is a judgment rendered by a qualified, experienced, independent business appraiser regarding the appropriateness of a transaction, often relating specifically to the economic outcomes for minority shareholders.  The critical question we answer is “whether the terms of the Transaction are fair to the Common Stockholders of the Company from a financial point of view.”  Complex capitalization structures, fast-moving private companies, and volatile capital markets can create genuine uncertainty when it comes to recognizing objective fairness.  This is an area in which we are truly expert. 

Board members are well advised to use due care in executing their fiduciary duties and mitigating real (and perceived) conflicts of interest. One way boards can demonstrate fulfillment of their duties is by seeking a fairness opinion from an independent advisor such as Arcstone.

No other firm on the planet combines the expertise of accredited valuation analysts with the experience of private equity and venture capital investors.  We are truly unique in our capabilities, and it shows.  As a completely independent advisor, we are removed from conflicts of interest that many investment banks and CPA firms encounter when rendering these services for their existing clients. 

Count on Arcstone when the opinion counts.

Consider requesting a fairness opinion in the following situations:

  • Non-competitive sale process 
  • Transactions with no investment banker or advisor
  • Transactions involving several classes of equity 
  • Dilutive transactions & down rounds
  • Considerable executive severance 
  • Related party transactions 
  • Potential investor conflicts 
  • Real or perceived conflicts of interest with deal advisors
  • Stapled financing provided by the deal advisor
  • A high degree of uncertainty regarding the value of the contemplated transaction
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Solvency & Capital Adequacy Opinions

State laws impose certain duties on boards of directors with respect to dividends, distributions and other transfers.  Dividends must be paid from surplus, and cannot leave the company insolvent or with insufficient capital.

The ultimate objective of a solvency opinion is to determine whether or not the debtor received "reasonably equivalent value" in a leveraged transaction.  Any time a company engages in such a transaction, all stakeholders are concerned about the company's ability to meet future obligations.  Failure to establish a basis for reasonably equivalent value constitutes constructive fraud and renders the transaction voidable, even several years after the fact.

Capital adequacy opinions provide an independent third-party analysis as to whether a company has sufficient capital to make a proposed distribution.  Capital adequacy opinions are often required as additional due diligence by a company’s board of directors in conjunction with decisions to declare a dividend, repurchase stock, spinoff of a subsidiary or otherwise make a distribution to equity holders. A solvency analysis and opinion helps companies and their boards of directors steer clear of fraudulent transfers and illegal dividends or distributions.  

Courts will generally accept a quality, independent solvency opinion as evidence of the firm's solvency at the time of the transaction. As such, Board members and executives should seriously consider obtaining a solvency opinion in connection with a leveraged transaction. 

A solvency opinion makes determinations as to whether, after giving effect to a transaction:

  • The company’s assets exceed its debts;
  • The company should be able to pay its debts as they come due;
  • The company is not left with unreasonably small assets or capital; and
  • There is sufficient surplus to effect a distribution. 

Courts have determined that the procurement of an independent solvency or capital adequacy opinion from a qualified party can, in most cases, significantly mitigate litigation risk for a management team or corporate board of directors making a decision about a contemplated transaction.  Boards of directors reduce their liabilities through the use of independent opinions. 

Our deep expertise in the areas of private equity, venture capital, valuation, restructuring, and M&A provides a foundation for bulletproof transactional opinions.

Consider requesting a solvency or capital adequacy opinion in the following situations:

  • Dividend recapitalizations
  • Leveraged transactions
  • Debt refinancings
  • Restructurings
  • Stock repurchases
  • Dividend distributions
  • Subsidiary spin-offs and split-offs 

Count on Arcstone when the opinion counts.