New data on the average holding period for non-marketable minority interests

BVWireIssue #73-2
October 8, 2008

Our latest online survey garnered 35 responses and a number of interesting insights on the average holding period for non-marketable minority interest. By the way: the online survey is still open, and taking responses; you can weigh in here.

The numbers broke out as follows:

  • When asked “What do you consider to be the average holding period for a minority interest in privately owned PROFITABLE COMPANY with $10 million in revenue?,” the majority of respondents (28.6%) answered “9-10 years,” followed by 15+ years (the time frame offered by 25.7% of respondents), and “5-6 years,” a response offered by 22.9% of the BV professionals who completed our survey.
  • Respondents also weighed in the following question: “What do you consider to be the average holding period for a minority interest in a privately owned NON-PROFITABLE COMPANY with $10 million in revenue?” To this query, 31.4% of analysts answered “9-10 years,” 25.7% said “5-6 years,” and 14.3% of those who completed the survey told us that the average holding period in such instances was “7-8 years.” Brian Pearson president of Valuation Advisors LLC, who spoke at our recent teleconference on Discounts for Lack of Marketability and Related Discount Issues notes that it’s odd that the holding period results are similar for a profitable and non-profitable company.  There may be a few reasons for this, he adds: the sample size is small or simply that people didn’t think about the differences too much.
  • We also inquired about the average amount of time spent arriving at DLOM conclusions for a company with $10 million in revenue. The top response (6-10%) was cited by 45.7% of respondents, followed by 11-15%—an answer offered by 25.7% of those who completed our survey.  

Equally compelling were the written comments offered by respondents. A few which caught our attention: “I have worked with closely-held companies for 25 years. Many of the companies and owners are the same as they were 25 years ago. These are controlling and non-controlling interests. There has been some transition to other family members primarily through gifting over is time [but] any of the newer generation have held their interests for 10 years or so and still hold the interests,” wrote one respondent.

Another more outspoken respondent offered more controversial comments: “Expected holding period has nothing to do with a discount for lack of liquidity/marketability. Nothing, zero, nada. Liquidity and marketability are related to the time it takes to convert an asset to cash once consideration is made TO SELL…Liquidity and marketability are not related to expected holding period. Securities traders may be concerned about liquidity and marketability when they look at their expected holding period, but investors are not traders. Bottom line: expected holding period has NOTHING to do with liquidity and marketability.”

Pearson disagrees with this respondent’s take: “Is it easier to sell a better performing investment?  Does it attract more interest?  Obviously yes, thus your theoretical holding period is less, and your presumed marketability is higher.”

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