Fairness Opinions Revisited

As managing director of a business valuation firm, I believe “Who Says It’s a Fair Deal” ( JofA, Aug.99, page 44) gave a false and very dangerous impression to JofA readers about the risks of preparing fairness opinions.

The author notes that, traditionally, investment bankers have written most fairness opinions, but “high fees and low risks” have attracted new competition—consultants and some CPA firms—giving the impression that these opinions have little risk.

In reality, fairness opinions are very high risk for the firm preparing them, with the material possibility it could be sued by one or several parties to a transaction. The reason opinions cost as much as they do is partially to compensate for potential litigation costs and risks. The fine print of virtually every malpractice policy specifically excludes fairness opinions from coverage—in other words, “Get sued—no coverage.” The costs of one lawsuit alone could quickly wipe out the entire fee, not to mention one’s personal net worth.

Also, the article may leave some readers with the impression that obtaining the AICPA’s ABV accreditation makes one competent to offer fairness opinion services. “Fairness” is a much more complicated concept than just “value” and includes complex legal and statutory concepts as well. The ABV accreditation enhances the skills of CPAs preparing business valuations, and I do not mean to knock it or those who hold it and have extensive experience in the business valuation field. However, the ABV requires “substantial experience” in only 10 valuation assignments and does not require a review of a candidate’s valuation reports in the accreditation process to ensure he or she is competently prepared.

The ABV is certainly a worthy certification. However, the article might lead readers to believe the ABV by itself is sufficient, giving a false sense of security to those considering this service as a new business avenue. Many years of valuations and real world transaction experience are absolute prerequisites for venturing into the world of fairness opinions. Those who choose to go into the field should be aware of the very real risks.

George B. Hawkins, ASA, CFA
Banister Financial, Inc.
Charlotte, North Carolina