Case Study: Financial Opinion Services

Fairness Opinion: PIPE/Related Party Equity Financing

Our Client

The Special Committee of the Board of Directors of a highly leveraged public company with limited operating history

Situation

The company needed to secure additional equity financing for working capital and to satisfy certain short-term obligations. The company was unable to secure the additional financing from unaffiliated third parties. The company then considered a private placement of units consisting of (i) a share of its common stock, and (ii) two warrants with different exercise prices and expiration dates. While the company's CEO and principal shareholder were initially envisioned to participate in the private placement, they eventually declined to do so. A number of other officers, directors and other affiliated parties remained willing, however, to participate in the private placement financing transaction. The Special Committee retained The Salter Group to render an opinion as to whether the transaction was fair, from a financial point of view, to the unaffiliated shareholders of the company.

Key Issues/Services

Developing certain reasonable assumptions regarding the company's working capital requirements, provisions for income taxes and certain other financial matters because such information would not be forthcoming from the company
Assessing the company's implicit value with, and without, the new capital investment
Considering the market's likely view of the company's future capital raising efforts and business prospects given that the CEO and principal shareholder would not be participating in the financing transaction
Assessing the fairness of the transaction during a period of unusual market volatility and a sharp decline in the company's stock price during the prior thirty-day period
Defending the decision of the Special Committee, in light of this unusual and coincidental market activity, by utilizing four different valuation approaches: the current share price, income, book and market approaches

The Salter Group's Role & Outcome

We rendered an opinion as to the fairness, from a financial point of view, of the transaction to the unaffiliated shareholders of the company.
The Special Committee and the Board of Directors of the public company approved the terms of the private placement financing and consummated the transaction with the officers, directors and other affiliated parties.

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