During the recent BVR webinar on fairness opinions, Craig Jacobson (Citrin Cooperman & Co.) and Jeffrey Rothschild (McDermott Will & Emory) touched on the pitfalls in preparing a fairness opinion. “As in any valuation assignment, it's important to be aware of matching the discount rates and the projections,” explained Jacobson. “I was at a gathering of valuation and legal people yesterday evening and one of the questions that was asked of me was ‘what's the biggest valuation error that you see?’  To me, it was hands down, a mismatch of discount rates and the risk inherent in the projections.” 

Other fairness opinion warning signs:

• Inadequate due diligence
• Selection of guideline companies/transactions
• Comparison with industry and general economic data
• Inappropriate application of valuation discounts and premiums

For the complete presentation by Jacobson and Rothschild, click here.