Private firms linger longer on the selling block

BVWireIssue #132-1
September 11, 2013

A newly updated analysis of data from BVR’s Pratt's Stats reveals that the time needed to market and sell a privately held business is 211 days, up from 200 days in the previous analysis.

Population studied: The latest annual update of an ongoing study, Marketing Period of Private Sales Transactions, examines a database of 7,928 private company sale transactions from BVR’s Pratt's Stats database. The population of the transactions occurred from February 1992 through the end of 2011. For each transaction examined, there’s an associated Standard Industrial Classification (SIC) code, sale initiation date, sale closing date, and asking price. The annual study, conducted by Vianello Forensic Consulting, LLC, also analyzes over 10,000 private sale transactions from the BIZCOMPS database.

The business valuation concept of marketability deals with the liquidity of the ownership interest. How quickly and with what certainty an owner can convert an investment to cash are two very different variables, but they work together when determining the value of an investment. For immediately marketable investments, the value of illiquid investments (regardless of the level of value) must be discounted to reflect the uncertainty of the time and price of sale. This uncertainty is reflected in business valuations by the discount for lack of marketability (DLOM).

Many factors contribute independently to the length of time it takes to sell a privately held business. Business appraisers should explore certain key contributors, which the study examines, when reaching conclusions about marketing periods.

A future issue of Business Valuation Update will present the key findings from this study.

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