In a complex transaction, closing the deal is only part of the challenge. Boards, special committees, executives, and counsel also need confidence that the process is sound, the economics are supportable, and the decision can withstand scrutiny after closing. The author shares when to get a fairness or solvency opinion.
In a complex transaction, closing the deal is only part of the challenge. Boards, special committees, executives, and counsel also need confidence that the process is sound, the economics are supportable, and the decision can withstand scrutiny after closing. That is where fairness and solvency opinions can help.
Although they serve different purposes, both can strengthen decision-making in high-stakes transactions. Transaction opinions can support fiduciary duties, improve the transaction record, and help defend against challenges from shareholders, lenders, creditors, or other stakeholders. In deals involving conflicts, leverage, valuation uncertainty, or heightened scrutiny, an independent opinion can provide clarity at a critical moment.
Understanding the Difference
A fairness opinion evaluates whether the consideration in a transaction is fair, from a financial standpoint to a specified constituency, such as common shareholders. It is often used in M&A, recapitalizations, related-party transactions, and other strategic events where the financial terms may later be called into question. The analysis behind a fairness opinion often includes discounted cash flow analysis, comparable company analysis, precedent transaction analysis, and, when relevant, merger consequences such as accretion and dilution.
A solvency opinion focuses on the company’s financial condition after the transaction closes. It typically evaluates solvency under three tests:
- Balance sheet test: Whether assets exceed liabilities, including contingent liabilities
- Cash flow test: Whether the company can meet obligations as they come due
- Reasonable capital test: Whether the company will have adequate capital to operate and absorb foreseeable risks
These opinions also have limits. They are not legal or tax advice, they are not a recommendation to approve or reject a transaction, and they do not guarantee future results. Their value lies in providing an independent financial assessment within a defined scope.
When a Fairness Opinion May Be Needed
A fairness opinion is often most useful when a transaction presents conflicts, complex valuation issues, or a meaningful risk of challenge. That may include related-party deals including continuation vehicles, management or insider buyouts, controlling shareholder transactions, going-private deals, and transactions overseen by a special committee. In these situations, an independent assessment can help demonstrate that the financial terms were evaluated appropriately.
Fairness opinions are also common in significant M&A transactions, such as a whole-company sale, a merger of equals, a major asset sale, or a stock-for-stock deal with a complex exchange ratio. When the decision is material and the process may later be examined, a well-supported opinion can help strengthen both.
They may be especially important when valuation is less straightforward, such as with high-growth or pre-profit companies, businesses with limited comparable data, or transactions completed in volatile markets. In such cases, an independent opinion can help frame a supportable range of values. They can also be valuable when shareholder litigation is possible or when proxy disclosures must clearly explain the basis for the board’s decision.
When a Solvency Opinion May Be Needed
A solvency opinion becomes especially relevant when a transaction materially changes the company’s capital structure, particularly when leverage increases. This commonly arises in leveraged buyouts, recapitalizations, and dividend recaps, where the business takes on significant debt, and questions may arise about its ability to support that burden. Solvency opinions are also often considered in large distributions, spin-offs with debt reallocation, significant asset transfers, debt-funded acquisitions, and refinancings that materially alter the company’s financial profile.
In some cases, they also serve a defensive purpose by helping provide support against later fraudulent transfer or insolvency claims. A contemporaneous solvency opinion can help show that the company was solvent at closing based on the facts and assumptions available at the time.
What Strong Support Looks Like
The value of a fairness or solvency opinion depends not just on the conclusion, but on the quality of the process behind it. A credible opinion starts with independence. That often means engagement by independent directors or a special committee, clear conflict management, and fee structures that support objectivity. It also requires analytical rigor. Strong opinions are typically supported by multiple valuation methods, scenario and sensitivity analysis, and, for solvency work, liquidity and debt-service stress testing.
Reliable inputs matter as well. Management should stand behind the forecasts used in the analysis, assumptions should be vetted carefully, and market data should be relevant and dependable. Timing and documentation are equally important. The scope should be clearly defined, the process should be well documented in meeting materials and minutes, and the opinion should be delivered in time to meaningfully inform the approval process.
What the Process Typically Involves
Most engagements begin with scoping: defining the constituency, transaction perimeter, deliverables, and timeline. The advisor then moves into diligence, reviewing historical financials, projections, transaction documents, financing terms, and market data. From there, the analysis is developed. For a fairness opinion, that generally means assessing valuation ranges and comparing them to the transaction consideration. For a solvency opinion, it means evaluating enterprise value, pro forma leverage and liquidity, and the company’s performance under the three solvency tests, often including downside scenarios.
The process usually concludes with a board or committee presentation, question-and-answer discussion, and delivery of the written opinion at signing, closing, or another key approval point. Supporting materials, assumptions, and reliance documents should also be retained as part of the transaction record.
Practical Considerations for Boards and Deal Teams
Engaging early can make a meaningful difference. A last-minute opinion may satisfy a process step, but it is less likely to provide the level of insight or support a board may need. It is also important to define the relevant constituency clearly; the opinion is rendered to a specified group, and that scope should be established from the beginning.
Boards and deal teams should also own the forecasts used in the analysis and test downside cases rather than relying only on overly optimistic assumptions. Where appropriate, considering alternatives or conducting a market check can further strengthen the process. Finally, disclosures should align with the opinion’s conclusions, assumptions, and limitations, whether they appear in proxy materials, lender communications, or other transaction documents.
A Quick Checklist
A fairness and/or solvency opinion may be worth considering if any of the following apply:
- There is a material change in control or capital structure
- The transaction includes conflicts or related-party dynamics
- Leverage will increase meaningfully, or a large distribution is planned
- Stakeholders could later challenge the transaction price or solvency
If the answer to any of these is yes, it may be worth consulting counsel and considering whether an independent financial opinion would strengthen the process.
This article was originally published in CBIZ Insights, May 12, 2026, and is republished here by permission.
Todd S. Mitchell, CFA, leads and executes valuation engagements with a focus on solvency opinions and M&A, including purchase price allocations (ASC 805), impairment testing (ASC 350/360), ESOPs, 409A, and tax-related valuations, while driving business development and reviewing/preparing valuations for business owners and key stakeholders.
Mr. Mitchell can be contacted at tsmitchell@cbiz.com.
