Why Pre-IPO Studies Are Unsound in Concept and in Practice

BVResearch Pro
American Society of Appraisers Business Valuation Review™
Fall 2021 Volume 40, Issue 3 pp. 97-103
Gilbert E. Matthews, MBA, CFA
discount for lack of marketability (DLOM)
pre-IPO study, discount for lack of marketability (DLOM)


This article explains why pre–initial public offering (IPO) studies are not a valid basis for determining marketability discounts. They are unsound in concept because the pre-IPO transactions and the subsequent IPO are priced at materially different dates and because the IPO price is not knowable at the earlier date. They are unsound in practice for several reasons, such as selectivity—the data include only companies that subsequently become publicly traded—and the fact that any pre-IPO discount includes not only a marketability discount but also a second discount for the risk that the IPO may not take place.
Why Pre-IPO Studies Are Unsound in Concept and in Practice
PDF, Size: 116 KB

Copyright American Society of Appraisers

The information contained in this product is based on content obtained by ASA from sources considered to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. BVR and ASA accept no liability for the use of such information which is provided "AS IS" and with no warranties, express or implied.