“Don’t use averages,” Roger Grabowski told a packed room of attendees at the Advanced Summit on Business Valuation: Resolving Tax & Legal Issues, co-sponsored by BVR and the Georgetown School of Law in Washington, D.C. last week. Grabowski should know—he was the taxpayer’s expert in the 1995 Mandelbaum case (Mandelbaum v. Comm’r, T.C. Memo 1995-255, available at BVLaw), what many analysts consider the defining decision on discounts for lack of marketability (DLOM) in the Tax Courts, as authored by Judge David Laro, whose organizing efforts have also shaped this third incarnation of the Tax Conference.
“I can’t say it enough—don’t just average the data from the restricted stock studies and slap on the discount,” Grabowski said. “We don’t use averages when we match multiples from public companies” in the market approach, he added. There is similarly no analytical support for using averages of any data, from the restricted stock studies or the pre-IPO studies, in cases of the DLOM. As Mandelbaum made clear, what’s far more important is to match the characteristics of your subject company to those in the data. “Match up the characteristics of rate of return with the discounts,” Grabowski said, especially when considering pre-IPO data. Ask about your subject company, “Do you have one that’s really attractive to someone to take public?”
The only tool for matching company data. The FMV Restricted Stock Study is the only database that allows you to match company characteristics to over 65 data fields and verifiable details on each restricted stock transaction. And the calculations just got more efficient with the introduction of the FMV DLOM Calculator. To find out how to use this unique new DLOM tool, purchase the on-demand pack including CD, transcript, and ancillary reading materials from yesterday’s teleconference featuring Kyle Vataha (FMV Opinions).
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