SPAC Deals Spark Boom In Fairness Opinions

One trend driving the recent rise in fairness advisories is the SPAC wave.

As the global economy recovers post-pandemic and the number of capital market transactions increases, the first part of 2021 has seen an unprecedented 468 fairness opinions on $682 billion worth of deals, according to Refinitiv.

Dealmakers pursue a fairness opinion in several key scenarios, such as a hostile takeover, or when involvement of insiders or affiliated parties raise the spectre of of conflicts of interest, or when competing bids show differences in price or structure—among other cases where shareholders maybe disagree on the fairness of the transaction.

Provided by an independent financial adviser, a fairness opinion provides a board of directors with a holistic review of the transaction from a financial point of view. It indicates an additional level of financial due diligence by the board and mitigates against future litigation risks.

One trend driving the recent rise in these advisories is the SPAC wave. In light of the unusual structure of the deals, the volatility of the SPAC market and the visionary nature of many tech targets, most of these transactions involve a fairness opinion. Archer Aviation, for example, an electric aircraft company, merged into Atlas Crest Investment Corp, a US SPAC, a deal that involved a fairness opinion. Similarly, Telefonica Deutschland required a fairness opinion in connection with the sale of its passive infrastructure to Telxius Telecom.

In addition, the markets and the US Securities and Exchange Commission have upgraded their SPAC oversight, while growing concern around the fairness of SPAC deals has driven many corporate directors to seek these analyses.

While the Americas lead the pack with 234 fairness opinions in the first part of the year, the trend is global: 172 fairness opinion transactions in the Asia Pacific region and 102 in EMEA.