The 2021 Discount for Lack of Marketability Study is available now from Johnson/Park Publishing and provides BV professionals with valuable tools for the valuation of interests in privately held corporations and partnerships. This indispensable publication includes three rate of return studies that can be used to measure the increase in return required to compensate investors for the lack of marketability of your subject interest. This teaser of Section 2 of the DLOM study covers restricted stock returns.
The second study examined the increase in return investors demand of restricted stocks as compared to the same shares of stock traded on an active exchange.
The restricted stock of a public company is identical to its counterpart that is traded on a major exchange, except that restricted stock cannot be openly traded for a designated period of time. A company usually issues restricted stock to raise capital while avoiding the costs of registering with the Securities and Exchange Commission. Prior to 1990, a public company could sell the stock of small companies without making a public offering. The securities sold in this type of transaction were subject to certain restrictions, which stated that the stock could not be resold without being registered with the SEC or qualifying for a Rule 144 exemption. Originally, Rule 144 allowed the limited resale of unregistered securities after a holding period of two years. In 1990, the SEC implemented new regulations that allowed qualified institutional investors to trade restricted stock among themselves without filing registration documents. This new rule, called Rule 144A, effectively created a limited market for the purchase and sale of these restricted stocks and increased liquidity for restricted stocks. In 1997, the SEC reduced the Rule 144 holding period from two years to one year. This change further increased the liquidity of restricted stocks.
In addition to the included portion of the second section, the full version of the 2021 Discount for Lack of Marketability Study covers private equity-versus-public equity returns, long-term-versus-short-term bond horizons and features a comprehensive analysis of the studies and how they interrelate. Make sure you don’t miss a beat and download your copy today! And check out our library of past DLOM studies to further expand your knowledge.