“It’s great that the area receives so much attention but also daunting that there are so many opinions on how to address the issues,” says one participant to our latest survey on the discount for lack of marketability (DLOM). It’s also notable that, when compared to our 2009 survey, opinions seem to have shifted. Consider:
- This year, nearly three-quarters (74.4%) of respondents say they apply the Mandelbaum factors when determining DLOM, down from four years ago, when nearly 83% did.
- Four years ago, the vast majority—over 90%—used the restricted stock studies (RSS), but this year that number slid to 74%.
- Reliance on pre-IPO studies is also down, from 52% who checked off this method in 2009 to 45% in the current poll.
Admittedly, this year’s survey is much more comprehensive, offering over 20 specific DLOM methods to choose from (compared to just five in 2009). The current survey also distinguishes between general RSS as well as restricted stock equivalent studies (some 5% checked this off) and the FMV Restricted Stock database (47% use it). Finally, the results don’t immediately reveal whether any particular method has absorbed the possible decline in reliance on RSS. Usage of the QMDM has held steady, at 17% in 2009 and 18.5% this year, as have quantitative option pricing models (about 10% in each year), although several respondents specifically added the Asian put model to this year’s “other” category.
Desperately seeking consensus? Survey comments also suggest the plurality of DLOM methods has multiplied their complexity and cost. “It seems like there is too much disagreement about methodology, which makes me never feel really comfortable with any method selected,” says one participant. Similarly, others believe this “is the complex area and one which now commands more time and attention than in the past to arrive at a sensible and defensible answer.”
Some believe BV appraisers have “over-engineered” the DLOM analysis at the expense of its credibility. Still others assert that the fact-specific nature of the determination makes the complexity and cost all but unavoidable. We will have more results next week, particularly on the use of partnership and the new Pluris data. The online survey is still ongoing; to add your comments, click here now.
Author of IRS DLOM Job Aid provides complete overview. Don’t miss the webinar tomorrow, January 24, when Michael Gregory, former IRS engineering manager and one of the chief authors of its DLOM Job Aid, discusses how to create credible DLOM determinations in “What Business Valuators Need to Know When Preparing a DLOM for the IRS,” Part 3 of our current DLOM series.
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