A fairness opinion is a formal assessment issued by an independent financial advisor stating whether a proposed transaction price is fair, from a financial perspective, to the parties involved. In the context of continuation vehicles, the opinion evaluates whether the transfer price for the assets moving into the new vehicle is fair to the existing LPs.
Why It Matters
Continuation vehicle transactions create an inherent conflict: the GP sits on both sides of the deal as the seller (managing the old fund) and the buyer (managing the new vehicle). A fairness opinion provides external validation that the price is reasonable, reducing the risk of LP disputes and demonstrating that the GP took steps to protect LP interests despite the conflict.
Key Details
- Issued by an independent financial advisor with no material relationship to the GP or the fund.
- Evaluates whether the proposed price is fair from the LP perspective, based on standard valuation methodologies such as comparable transactions, discounted cash flow, and market multiples.
- A fairness opinion confirms that a price is fair, not that it is the best possible price. "Fair" and "optimal" are different standards.
- More common in larger transactions and in deals where the GP conflict is most pronounced, such as single-asset continuation vehicles.
- Complements but does not replace other safeguards like competitive bidding processes, third-party valuations, or LPAC review.
For a full overview of how conflicts are managed in these transactions, see the Continuation Vehicles guide.
This content is for informational purposes only and does not constitute legal, tax, or compliance advice. Consult qualified counsel for guidance specific to your situation. Capital Company is not a law firm and does not provide legal advice.