Two main approaches for estimating a discount for lack of marketability (DLOM) are restricted stock studies and pre-IPO studies. During a recent webinar, an attendee asked: “Is there a general consensus as to which is better when estimating DLOM: restricted stock studies or pre-IPO studies?” Actually, it really is not a case of “either or” but rather that you should not rely on only one approach. Evidence from several sources should be assembled and integrated into your analysis. “We use both,” says Brian Pearson (Valuation Advisors), who is a valuation practitioner as well as the creator of the Valuation Advisors Lack of Marketability Discount Study, an online database with over 15,300 pre-IPO transactions. In addition to the two types of studies, he uses the Mandelbaum factors and LEAP option discount-based data. “The more ammunition you have in your arsenal to arrive at a discount, the better,” he says.
Free webinar: A free recording of the webinar, Pre-IPO Revival: Up Your DLOM Game in 2020, is now available in which Pearson discusses new data added in 2019, misconceptions and criticisms of pre-IPO data, and uses for the data that extend beyond estimating a DLOM.