Imbedded discounts for lack of marketability (DLOMs) have been uncovered in a new study of the BIZCOMPS database of sales of small private companies. The authors of the study, the first of its kind, welcome feedback from the valuation community.

DLOMs revealed: The study, conducted by Ronald D. Rudich (Business Valuation Group LLC) and Baria Jaroudi (Briggs & Veselka), examines the asking price, the sale price, and the days on market to establish the individual built-in DLOM for each transaction. The study includes an example (based on the 2018 BIZCOMPS database) that analyzes 141 transactions for SIC 5411 (grocery stores) and comes up with an average DLOM of 17.44% (median of 13.8%). The authors also provide an Excel spreadsheet that shows what the ultimate data set would look like for all SIC codes.

“We conclude that this ‘new’ information will greatly assist each and every business valuator with much more support for and understanding of the DLOM present in the data and to assist in determining whether additional DLOM should and/or could/must be considered,” the authors write. They contemplate an update to the study each year as an added feature for BIZCOMPS subscribers.

The study is in the March 2020 issue of Business Valuation Update (subscription required), or you can request a copy directly from the authors. You can contact Ron at Ron.Rudich@bvgllc.com and Baria at BJaroudi@bvccpa.com. Feedback on the study will be greatly appreciated.