If the Advisor providing the opinion also stands to benefit financially from the transaction closing, external stakeholders or the court may reasonably question how independent that opinion really is.

By receiving a Fairness Opinion from your existing Investment Banker or Consulting/Accounting firm, it can be difficult to ensure 100% objectivity.

If your Banker stands to make a Success Fee if the transaction they are advising you on closes, or if payment for their advisory work is contingent on that transaction going through, the value of that advisory may be questioned by external stakeholders or the Commercial Court.

In its decision in the 2009 HudBay proceedings, the Ontario Securities Commission noted that an adviser’s success-based compensation may adversely affect the ability of a board to rely on financial advice: “a fairness opinion prepared by a financial adviser who is being paid a signing fee or a success fee does not assist directors comprising a special committee of independent directors in demonstrating the due care they have taken in complying with their fiduciary duties in approving a transaction.”

The potential conflicts across these large advisory organizations have become increasingly difficult to manage due to their size and scope.

Even when it is not specifically required for approval of a transaction or a restructuring, an independent Fairness Opinion can be valuable when a Board or Management team expects a significant transaction to face shareholder or public scrutiny.

It really comes down to how well you like to sleep at night. Shareholder activism is now a primary business model for some investment firms, and when combined with the Internet, Boards of Directors and Management now have targets on their backs.

This is why working with a truly independent Advisor is as important as ever.

In some transactions, companies seek a second or even third Fairness Opinion where the independence of another provider may be questioned.

With a lack of independence by Fairness Opinion providers being called out by the Commercial Courts in a number of high-profile cases in recent years, there has been a push for companies to seek multiple Fairness Opinions.

This is particularly the case where an Investment Bank stands to earn fees on the success of the underlying transaction.

In 2016, the Yukon Court of Appeal overturned the approval of ExxonMobil’s acquisition of InterOil by plan of arrangement. The court held that the arrangement was not fair and reasonable, largely because of problems with the fairness opinion from InterOil’s investment banker, Morgan Stanley. The opinion stated a conclusion without showing the analysis behind it, and most of Morgan Stanley’s fee depended on the deal closing. The decision has been a key reason boards now seek truly independent fairness opinions in these transactions.

HDL is happy to follow in behind and provide a highly efficient and cost-effective “backup” second or third Fairness Opinion where needed.

The cost of that additional Fairness Opinion is not insignificant, but when compared with the cost of a failed transaction, it’s money very well invested.

HDL can typically clear conflicts and confirm whether we can accept an engagement within hours, which matters when a live transaction is already moving.

Our clients and their legal advisors have remarked that it can now take a large firm up to a week to complete simple conflict checks and clear the mandate internally, if it gets cleared. By that time HDL could have 75% of your project completed.

We advise on conflicts and clear an engagement in a few hours and can guarantee 100% independence.

HDL can move quickly. Depending on the assignment and how quickly information is provided, a Fairness Opinion can be completed in as little as 10–14 days.

We can typically produce a Fairness Opinion in as little as 10–14 days.

It really depends on how responsive your team is in providing information to us.

HDL keeps its core team deliberately lean while drawing on experienced accounting, valuation and transaction resources when required. Senior owners of the firm remain responsible for the execution and approval of all Fairness Opinions developed.

Our core team is lean and mean, with unmatched responsiveness and integrity. We have capabilities to produce the same quality product as a large Bank or Consulting/Accounting firm.

We have dedicated resources, including CPAs, CBVs etc., who have worked on Fairness Opinion projects of all types and sizes. All of our deliverables are overseen by senior team members, owners with upwards of 25 years of transaction experience.

No. HDL’s Fairness Opinion work is built around the specific transaction, supported by clearly presented analysis and informed by current transaction and capital-market experience.

In our mind there is no need to deliver an 80-page presentation with a picture and a single paragraph on each page to justify our fees.

We take the time to provide clear and concise observations and accompany those with valuable analysis and recommendations wherever possible. With each mandate we strive to inject common sense, fairness and thoughtfulness.

Our team draws on 25+ years of transaction experience and overlays a very current and relevant “lens” on what is happening in the capital markets to our Fairness Opinion mandates.

Clients have remarked that this extra “ear to the ground” has provided unexpected insights and value in their transaction decision-making process.

HDL works on a predetermined fixed fee and is typically competitively priced against much larger firms. We can usually provide an indication of cost and timing after a short introductory conversation.

Our clients have typically remarked that our Fairness Opinions are priced very competitively against our larger peers in the market, but delivered quicker and with greater insight and granularity.

We would be happy to have a quick intro conversation and provide you with an indication of cost and timing.

The Advisor preparing the Fairness Opinion should not make more money because the transaction closes. HDL’s fee is established in advance and does not depend on the outcome.

We won’t consider working on any basis where our fees are governed by the outcome of the underlying transaction, referred to as a “contingency fee” arrangement. That just doesn’t sit well with us, as it throws objectivity out the window.

We will only work on a predefined fixed-fee arrangement, with payment due at delivery of our Fairness Opinion, regardless of the outcome of the associated transaction.

A Fairness Opinion provides an independent conclusion on whether the financial terms of a proposed transaction are fair from a financial point of view. It does not determine whether the transaction is the best available deal or recommend how shareholders should vote.

A fairness opinion is a formal letter, usually from an investment bank or independent financial adviser, that tells a company’s board whether the price in a proposed deal is fair to shareholders from a financial point of view. It’s most common in mergers, acquisitions, plans of arrangement, insolvencies, restructurings, take-over bids and related-party deals.

What it is, and what it isn’t

• It’s a judgment about a price range, based on methods like comparable companies, precedent transactions and discounted cash flow. It says the price is “fair.” It doesn’t say the price is the best one available.
• It is not a formal valuation. A formal valuation gives a specific value or range and has stricter rules on disclosure and independence. In Canada, MI 61-101 requires a formal valuation in certain insider bids and related-party deals.
• It doesn’t comment on the business case for the deal, its legal terms, or whether shareholders should vote in favour.

A Fairness Opinion is not legally required for every transaction, but it can provide important independent financial support for Boards and Special Committees making significant transaction decisions, particularly where there is heightened scrutiny or potential conflicts.

Canadian law usually doesn’t require a fairness opinion. In practice, though, one is expected for any significant deal, for these reasons:

1. It supports the board’s duty of care. Directors have to make informed decisions in the company’s best interests (BCE, 2008). Advice from a qualified financial adviser shows they did their homework and helps protect their decision under the business judgment rule.
2. It supports court approval. In a plan of arrangement, the court must find the deal “fair and reasonable.” Judges look closely at the fairness opinion. InterOil (2016) showed that an opinion with conflicts, or with no analysis behind it, can sink the approval.
3. It helps shareholders vote. The opinion is summarized in the circular so shareholders can judge the price. That only works if the analysis is disclosed and the adviser is independent.
4. It matters most when there are conflicts. In management buyouts, controlling-shareholder deals and other related-party deals, the special committee relies on an independent opinion to show minority shareholders were treated fairly.
5. It reduces litigation risk. A solid, independent opinion makes it harder for dissenting shareholders to challenge the deal.

HDL typically needs the transaction terms, historical and forecast financial information, relevant business and operating information, market data and access to Management to understand the company, the proposed transaction and the assumptions supporting the analysis.

A fairness opinion draws on the deal terms, the company’s own financials and plans, market data, and conversations with management. The adviser usually reviews:

1. The transaction itself

• The draft or final transaction agreement (arrangement agreement, merger agreement, support agreements)
• What shareholders receive: cash, shares, contingent payments, earnouts, and any special terms
• Deal protections such as break fees, no-shop clauses and matching rights
• Information on how the deal came about, including other bidders, the sale process and any market check

2. Company financial information

• Audited financial statements, usually for the last three to five years, plus recent interim results
• Management’s internal forecasts and budgets, which are often the most important input
• Quality of earnings or normalized EBITDA adjustments
• Balance sheet items: debt, cash, working capital, leases, pensions and other debt-like items
• Tax attributes such as loss carryforwards and tax pools

3. Business and operating information

• Customer, supplier and contract details, including concentration and key contracts
• Capital spending plans, asset condition and reserve or resource reports for resource companies
• Management’s views on risks, opportunities and strategic alternatives
• Material diligence findings, litigation and regulatory issues

4. Market and comparable data

• Trading prices and volumes for the target’s shares (for public companies)
• Trading multiples of comparable public companies
• Multiples paid in comparable past transactions
• Industry outlook, commodity prices, interest rates and cost of capital inputs

5. Specifics relating to the buyer, when shares are part of the price

• The buyer’s financials, share trading history and outlook, since shareholders’ value depends on the buyer’s shares
• Expected synergies, and whether any of that value is shared with target shareholders

6. Management interviews and representations

• Discussions with senior management and the special committee
• A representation letter from management confirming that the information is complete and accurate and that nothing material has changed

The Adviser generally relies on the information it’s given without auditing or independently verifying it, and the resulting opinion clearly states this. The opinion is only as good as management’s forecasts. That’s why, after InterOil, boards and courts expect the key assumptions and analysis to be disclosed in the opinions, not just the conclusion.

The Board of Directors or Special Committee that commissions the Fairness Opinion is typically the party formally relying on it. Shareholders, courts, regulators, exchanges and institutional investors may also review and use the opinion when assessing the transaction.

Parties formally entitled to rely on a Fairness Opinion:

• The Board of Directors relies on a Fairness Opinion to show it made an informed decision, which supports its duty of care and the business judgment rule.
• The Special Committee appointed by the Board uses it to show it protected minority shareholders when the deal involves conflicts.

Other parties that use Fairness Opinions (but not formally entitled to rely on them):

• Shareholders read Fairness Opinions in the circular when deciding how to vote. The opinion states it is not a voting recommendation, which limits their ability to sue the adviser.
• The court treats it as evidence when deciding whether a plan of arrangement is fair and reasonable, as in InterOil.
• Regulators and exchanges like the TSX review how the opinions are disclosed, including the fee, the adviser’s independence and a summary of the analysis.
• Proxy advisers and institutional investors use it in making voting recommendations and decisions.

The opportunities that find you are only one part of the market. Some of the best acquisitions we have sourced for clients were not for sale until we approached them.

There’s a reason why certain companies are approaching you, and others are not. We often compare it to hiring. Some great candidates are actively looking, but many of the best people are happily employed and only move when the right opportunity finds them. Acquisitions work the same way. In our experience, many strong, well-run companies have never considered selling until we reach out with a compelling reason to.

That’s why we help our clients build a larger, proactive funnel. It lets you pursue the companies that best fit your strategy, rather than choosing only from what happens to be available. It also gives you more leverage in negotiations, a better chance of closing deals without a crowded auction, and a wide field of opportunities to compare side by side.

When that happens, the gems really stand out, as do the dogs.

At HDL, we work as your dedicated diamond miners.

Yes. In fact, some of the best acquisition opportunities we have sourced were companies that were not actively for sale when we first approached them.

Absolutely. Approaching “off-market” companies is one of the most valuable things we do. Many owners of strong, well-run businesses have never put their company on the market, but that doesn’t mean they wouldn’t consider the right conversation with the right buyer.

We start by identifying companies that fit your strategy, then reach out directly to the owner. Our approach is respectful and low-pressure. We aren’t asking them to sell. We’re opening a conversation about their plans and whether a partnership could make sense. Owners take the call for many reasons: succession planning, a desire to grow faster with more resources, a wish to take some chips off the table, or simply curiosity about what their business is worth.

We typically keep our buy side client’s identity confidential in these early conversations and only introduce you once the owner has shown genuine interest.

Because these companies aren’t being shopped to other buyers, you often have the chance to build a relationship with the owner, avoid a competitive auction, and negotiate on more favourable terms.

An external M&A Advisor gives you anonymity, transaction experience, additional market reach and a dedicated team that can keep the acquisition program moving without distracting your internal people.

The first reason is that many companies view calls from competitors as nothing short of corporate espionage, someone just fishing for their private information, who may steal their clients or employees.

Even if they do respond, they typically end up sharing far more sensitive and valuable information with your M&A Advisor than they would with your team.

Secondly, your team already has limited bandwidth to run the business. A proper acquisition program takes sustained effort over many months or more, and internal resources often get pulled back into their day jobs, which stalls outreach and follow-up.

Lastly, when engaging an experienced M&A Advisor, you get an entire team working on your project, with a wide range of toolkits, frames of reference, spheres of contacts and unique “tricks of the trade.” Beyond their own outreach, M&A Advisors have long-standing relationships with hundreds of other M&A advisors, lawyers and accountants who provide leads from their own networks.

That said, if you already have an internal team in place, we’re always happy to collaborate and build an even stronger team, all rowing in the same direction.

Finding companies is only the beginning. The real value comes from determining which ones actually fit the acquisition strategy and are worth your management team’s time.

Building a large funnel is important, but your management team’s time is limited, so our job is to make sure the opportunities that reach you are worth it. Before any target moves forward, we work with you to define what a good acquisition looks like for your business, and then we assess each company against those criteria.

We typically look at strategic fit first: whether the company’s products, services, capabilities and customer base complement yours. From there, we consider size and financial profile, including revenue and EBITDA, along with geography, the strength of the management team and how dependent the business is on its owner. Just as important is the human side: the owner’s goals, their likely valuation expectations and how realistic it is that they would transact.

We’re also quick to flag the warning signs that a company isn’t worth pursuing, such as heavy customer concentration, an owner with unrealistic price expectations, declining revenue, or a business that couldn’t operate without its founder.

The result is a focused list of targets that genuinely fit your strategy, so your team spends its time on the gems rather than the dogs.

Expect a few weeks at the front end to align on the acquisition strategy. Once a qualified target is engaged, we typically see a closing process ranging from approximately 90–180 days.

There is typically a “getting to know each other” phase at the front end of our engagements, which is critical to ensuring our efforts are 100% aligned with your goals and growth objectives.

We get to know what you like, and what you don’t like, and cater our market approach accordingly. During this few-week period we analyze your financials and operations, and usually provide some good insights along the way that shape the acquisition strategy.

Once we are up and running, we typically uncover fresh targets right out of the chute, but we prefer to do some preliminary qualification and due diligence before arranging any calls or meetings. This keeps your team from getting bogged down on Zoom calls.

We focus on quality, not quantity.

Once a qualified target comes up, we typically see a closing process ranging anywhere from 90–180 days on average.

You will know who has been approached, who has responded and where conversations stand. We provide detailed progress reporting, typically weekly or bi-weekly.

We have invested in and implemented an advanced cloud-based CRM system with which we track all of our outreach to and interactions with targets on your behalf.

We generate regular, highly detailed reports on our activities and progress, typically weekly or bi-weekly.

Yes. HDL has sourced acquisitions from Canada to China and everywhere in between, supported by an international network of M&A Advisors and transaction professionals.

We have sourced acquisitions from Canada to China and everywhere in between.

If you need to shore up your business in another market, we are primed and ready to hunt for you anywhere.

We have partnerships with M&A Advisors on every continent who can augment our search and offer clients for sale in their direct networks.

HDL’s role does not stop when a target says yes. We stay involved through valuation, structure, negotiation, diligence, financing and closing.

HDL is very involved. Getting a target to the table is a big milestone, but it’s also the point where many deals start falling off the rails. We act as the glue that holds the process together through closing.

Once a serious target is engaged, we help you determine what the business is really worth and how to structure an offer that works for both sides, whether that includes cash at close, an earnout, vendor financing and/or the owner rolling over some equity. We then help prepare the letter of intent and work through purchase-price and structure discussions.

Your management team stays in the driver’s seat on the decisions that matter most: whether the business is the right fit, how it will be integrated and final approval of the terms. We keep everything else moving.

We have extensive experience bringing in lawyers, accountants, lenders and other professionals when they’re needed, and just as importantly, at the right time. Bringing advisors in too early or letting them run without direction is one of the most common ways deal costs build up. We keep every party on track, on schedule and honest, which prevents unnecessary delays and saves you money along the way.

When issues come up in diligence or negotiations, we address them quickly and keep the deal moving toward a successful closing.

We can help optimize the capital structure and work with your lenders, equity investors and other financial partners to help get the financing in place when required.

We will analyze and help you optimize your capital structure for the short, medium and long term, and liaise with your bank lenders, equity investors or other backers as needed to help get the financing in place, if applicable.

We have had instances where a client was unable to finance an acquisition with their existing bank, but after HDL did a proper, comprehensive “work-up” and presentation of the acquisition opportunity, the same bank provided full financing, and more.

HDL works on a combination of a monthly Work Fee and a Success Fee paid when a transaction closes, keeping us focused on both building the acquisition pipeline and getting good deals completed.

We work based on a balanced blend of an ongoing monthly Work Fee combined with Success Fees, a percentage of the value of the target purchased, paid on closing of successful transactions.

This keeps us driving to build a deep, well-qualified funnel of acquisitions, and also ensures we remain highly motivated to get deals closed efficiently.

Our clients have remarked that our experience and expertise has kept them out of trouble and helped them avoid costly mistakes, which the HDL team has seen time and time again.

In a nutshell, the extra investment in engaging HDL in the short to medium term should save you a TON in the long run.

Integration planning should start during due diligence, not the day after closing. We work with your functional teams and external advisors so everyone understands what needs to happen before the deal is done.

We can’t do everything, but we can certainly work with your HR, Operations, Finance, Sales and Marketing teams to plan for integration of your acquisitions.

We like to use the due diligence process to touch on all of these key functional areas so that when the closing date arrives, your team is not scrambling.

We surround you, if needed, with equally minded and efficient lawyers, accountants etc. to make sure your support team matches your company’s stage of growth.