05 / December 2016

Latest methodology and practices for DLOM examined

Posted in: BVWire News Written by: Andy Dzamba
Categories: discount for lack of marketability (DLOM) option price modeling valuation method
Tags: discount for lack of marketability (DLOM) discount for minority interest minority discount option price modeling pre-IPO study restricted stock study

A topic that always creates a great deal of interest—and spirited debate—is the discount for lack of marketability (DLOM). Is there a consensus somewhere in our future? BVR has several new resources that will shed some light and provide new insights on this confounding topic.  

New survey: While restricted stock studies and pre-IPO studies remain the most cited methodologies for quantifying a DLOM, their usage has declined a little, according to a recent BVR survey. Over 100 respondents participated in the survey, and here are some highlights:

  • Three-quarters (76%) of respondents say they use restricted stock studies (RSS), down slightly from 79% in 2013—but sharply lower than the 90% usage rate reported in 2009.
  • Reliance on pre-IPO studies is also down a bit, to 43% from 47% in 2013. In 2009, over half (52%) said they use this method.

The results don’t immediately signal any tidal shift in usage of methods, although we point out that the use of option price models has gained steam. The Finnerty model is used by 20% of respondents (up from 9% in 2013), and the Longstaff model saw similar gains (13% in 2016 versus 6% in 2013). The Chaffee model saw a slight increase, from 9% in 2013 to 10% this year.

A complimentary download of the survey results is available if you click here.

DLOM workshop: A group of top valuation experts will conduct a special four-hour DLOM Day: An Advanced Workshop on December 8. The presenters are Chris Treharne (Gibraltar Business Valuations), Alina Niculita (Morones Analytics), William Quackenbush (Advent Valuation Advisors), Martin Greene (Greene Valuation Advisors, LLC), and Bruce Johnson (Munroe, Park & Johnson, Inc.). They will review the key DLOM approaches and discuss their strengths and weaknesses. You'll also get some tips for handling the reconciliation. Join us, won't you?   

 

Categories