The use of restricted stock studies remains the most cited methodology for quantifying a discount for lack of marketability (DLOM), according to the preliminary results of BVR’s 2021 DLOM survey. Nine out of 10 respondents say they use restricted stock studies, with the Stout study being the front runner (75% say they use the Stout study).
Option pricing models are the second most-cited methodology (48%), and 45% of respondents use pre-IPO studies. Rounding out the top five are the Johnson/Park empirical method (27%) and Mercer’s quantitative marketability discount model (22%). The survey had over 200 respondents, and multiple methods could be chosen in the survey questions. When asked how many methods respondents use in their analysis, 38% say they use two methods, 25% use three methods, and 21% use just one method.
BVR has been conducting this survey for over 10 years, the last one being done in 2018. The order of the five most-cited methodologies remains the same (see chart below) but the percentages for most of them have increased. We point out that this year’s survey had twice the number of respondents as the 2018 survey, so that may account for some of the changes.
| DLOM Methodology | 2021 | 2018 |
| Restricted stock studies | 90% | 75% |
| Option pricing models | 48% | 42% |
| Preinitial public offering (pre-IPO) studies | 45% | 38% |
| Johnson/Park empirical method (Partnership Profiles) | 27% | 32% |
| Mercer's quantitative marketability discount model (QMDM) | 22% | 11% |
| None of the above | 1% | n/a |
| Other | 24% | 23% |
Respondents who checked the “Other” category cited such methods as cost of flotation (14%), Long-Term Equity Anticipation Securities (13%), VFC DLOM Calculator (7%), Ashok B. Abbott analysis (6%), and NICE (5%).
More next week: The survey asked more questions about DLOM methodology and practice, and we will have more results in next week’s BVWire. We will also make the full results freely available to everyone. Thanks to everyone who participated!