In his article “Should Substantial Discounts Apply to Very Short Holding Periods?” (Trusts & Estates, July 2011) Aaron M. Stumpf (Stout Risius Ross) describes his firm’s (SRR) proprietary Restricted Stock Study and how it can reasonably support applying substantial discounts for lack of marketability (DLOM) to investments that lack liquidity over a relatively short holding period. (Note: subscription required to access full article.) The study involves transactions from September 2005 through February 2010— the years before and after the most recent changes to Rule 144.
SRR studied this period “to quantify how this change impacts discounts as well as to analyze the effect of certain company-specific factors on discounts,” explains Stumpf.
“We think that a discount study involving short holding periods is useful in the context of valuing closely held minority interests in which a liquidity event is imminent, such as a sale of the company or a pending initial public offering.” In addition to Stumpf’s article, read “A Preliminary Look at SRR’s Restricted Stock Study” on the SRR website.