At the DLOM Summit, it became clear that the calculation of risk derived from the expected holding period can be one of the more subjective inputs of the analysis, making it that much more susceptible to questions and review. Models such as the Quantitative Marketability Discount Model (QMDM) specifically require analysts to estimate the holding period risk “in the context of enterprise discount rate and alternative investments, including restricted stocks,” presenter Chris Mercer (ASA, CFA, Mercer Capital, Memphis, TN) told attendees.
The Longstaff method (lookback put option) also requires the analyst to estimate the holding period using guideline company analysis or judgment, Mercer explains noting that by comparison, analysis under the FMV Restricted Stock Study™ looks at the holding period only “to the extent that guideline comparisons with selected transactions …are relevant,” calculating the implied returns over expected holding periods under varying assumptions. Generally, the Pre-IPO studies, restricted stock studies, and Mandelbaum analysis make a qualitative assessment of the holding period.
What is the average holding period for non-marketable, minority interest? That’s the question we’ve posed in our latest online survey. Do you consider the average holding period to be 1-2 years, 2-4 years? More? Much more? The survey will only take a couple of clicks—and we’ve added a second question, too, about the average percentage of project time that you spend on DLOM determinations. Please click here to take the quick survey; the answers will provide fodder for discussion (including an open Q&A period) during the next BVR teleconference, “Discounts for Lack of Marketability,” featuring Brian Pearson and taking place tomorrow. Register now.
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