On the Valuation LinkedIn group, the question posed was: In valuing a private company, what is the typical range to consider for lack of marketability?
Doesn’t exist: As you might expect, a number of responses correctly pointed out that there is no typical range, as each valuation situation is unique and a thorough analysis of the subject company is needed. One commenter said: “DLOM in a private company is dependent on many factors including the availability of buyer for the private company, stake that is proposed to be sold off (majority attracts lower DLOM), cash reserves of the company, probability of the company getting listed in near future. All these factors need to be critically understood prior to a call on DLOM.”
Another commenter, a derivatives valuation expert, uses put options to estimate DLOM. He gives this example: “You initially valued the stock at $10 per share. To guarantee that you can sell at $10, you need to purchase a put option, with a $10 strike price. The maturity of the put option can be obtained from something like a dribble rate. Let's assume you calculate the put option at $2. Then the discount you need to take is $2/$10 = 20%.” Someone pointed out that the put option method has its critics and that no single method should be used.
Cutting remark: One commenter lit into the person posing the question, saying it shows “an alarming and troubling level of amateurishness and naïveté.” Not content with this jab, he continues: “Frankly, you very likely should not be completing such a valuation project (alone) if you have no knowledge of/experience with this topic, and it seems that you don't.” Ouch!
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