During a recent free BVR webinar, Patrick Polomsky, who is with Stout, where he maintains the Stout Restricted Study database, explained the ins and outs of the study and noted that the typical method analysts have used to estimate a discount for lack of marketability (DLOM) is not as comprehensive as it should be, that is, simply looking at the averages of the Stout study and/or other studies to estimate the DLOM. This “benchmark average approach” can be problematic because it often relies too heavily on generalized data without considering the specific financial characteristics and market dynamics that impact discounts for lack of marketability, according to Polomsky. The courts have had a problem with simple benchmarks, he noted.

The Stout study emphasizes the importance of understanding the unique attributes of the subject company rather than just applying a broad benchmark. The Stout Calculator embodies this approach, which is driven by the financial characteristics of your subject company as well as the volatility of the market. The results can be used to augment your qualitative analysis (e.g., Mandelbaum factors), and the calculator’s output data can be used in an appendix to your valuation report.

Updated user’s guide: The 2024 edition of the “Stout Restricted Stock Study Companion Guide” is now available, and it reflects updated tables and graphs that contain new transactions. The study is the most widely used restricted stock transaction database for providing empirical support for a DLOM, according to BVR surveys.

To download the new guide, which is free to everyone, click here. To listen to the free one-hour webinar with Polomsky, click here.