Business Valuation Update
- How to Review a Report’s Valuation Methodology
- Ideas for Solving Two Problems in the BV Profession
- How Do Your Firm’s Benefits Stack Up?
- Using Rule of Thumb Data to Uncover Cooked Books
Why Valuation Experts Should Not Use the Term ‘Nonmarketable’
For the past two years, our firm has not used the term “nonmarketable” as a descriptive for a conclusion of value. We feel it is completely inappropriate to use a negative term when informing clients of the value of their control or minority interest. Rat ...
Volatility and the DLOM
Volatility is an issue in most calculations of an appropriate discount for lack of marketability (DLOM) for a minority interest. Frequently, appraisers value the interest at some date in the past. Thus, they often use market data from before the valuation ...
Latest LEAPS Study Sheds Light on Company Size and DLOMs
It is well accepted by now that company size affects the size of the discount for lack of marketability (DLOM): The smaller the company, the larger the discount. It is also commonly accepted that the longer the likely holding period of a closely held inte ...
The value of marketability as illustrated in IPOs: May 1997 - December 2000
A critical aspect in determining the fair market value of closely held securities is the discount for lack of marketability. The term discount for lack of marketability is a general term in business v ...
Latest Study Available for the Empirical Method for Determining DLOM
The 2020 Discount for Lack of Marketability (DLOM) Study, recently released by Partnership Profiles, offers objective rate of return measures to implement the Johnson/Park empirical method. This method uses three approaches to measure the increase in return required to compensate investors for the lack of marketability of a subject interest.
The State of the Fair Value Standard in Divorce
Many states’ courts apply the fair market value standard when appraising the value of closely held businesses in divorce cases.1 These courts generally define fair market value by reference to tax guidance: the price a willing buyer and a willing seller ...
How to use the Valuation Advisors database: A hypothetical example
By Brian K. Pearson * We at Business Valuation Resources are proud to be selected as the distributor for yet another valuable resource to help business appraisers in quantifying marke ...
Fair value versus fair market value: Is there a place for fair value in marital dissolution?
Previously, the concept of "fair value" has been limited strictly to shareholder oppression or shareholder rights matters. State law—including family law statutes—typically does not define fair value ...
How to Better Validate the Reasons for Private-Company Discounts
Editor’s note: In the June 2016 issue of Business Valuation Update, Gilbert Matthews wrote an article about whether private companies are valued for less than public companies solely on the basis of being private or whether other factors are involved. T ...
Why are restricted stock discounts actually larger for one-year holding periods?
The FMV Restricted Stock Study™ has long been the largest empirical analysis of restricted stock transactions and is becoming a commonly used data source for appraisers looking to determine ...
Do You Really Know Your Data for Determining Discounts?
The analysis of a popular data source used in determining discounts for asset-holding entities. An advanced understanding of the data is critical in order to avoid overvaluing your client’s investments by understating the discounts.
This Short Paragraph Can Bolster the DLOM Section in Your Next Report
Are you using a simple “benchmark average approach” for your analysis of a discount for lack of marketability (DLOM)? That type of analysis may have passed muster years ago, but times have changed.
Using Convertible Preferred Stock Transactions to Calculate DLOM
The Valuation Advisors DLOM Study™ database, with over 4,300 transactions, is a valuation tool that compares the initial public offering stock price to pre-IPO common stock, common stock option, and convertible preferred stock (CPS) prices. Brian Pearson ...
New Survey Spotlights Current Practices and Continuing Questions in Determining DLOM
An exclusive survey by the BVWire on the current methods for calculating the discount for lack of marketability (DLOM) showed an increasing sophistication among business appraisers, particularly in their understanding and appreciation for the factual, legal, and empirical underpinnings of any DLOM conclusion. The survey s record response (more than any other BVWire e-poll to date) demonstrates the continuing and keen interest in this hot topic of BV practice a topic that will be on center at ...
Getting Ready for 409A: Some Practical Considerations
The issuance of the Section 409A tax regulations (and the current effective date of January 1, 2008) has renewed interest in the valuation of common stock for equity compensation purposes. By now, most appraisers have been exposed to the relevant Interna ...
Liquidity and levels of value: A new theoretical framework
The author provides an illustration of the use of restricted stock studies in a two-step process to estimate the discount for lack of marketability for a closely held stock.
Restricted Stock Studies That Back Up the DLOM
One of the most convincing types of evidence that supports the concept of a discount for lack of marketability (DLOM) is found in studies of restricted stock. Not only do these studies establish the existence of DLOMs, but they also reveal the factors tha ...
The value of marketability as illustrated in dot.com IPOs: May 1997-March 2000
This study is an outgrowth of the eight pre-IPO discount studies published by John D. Emory, Sr. covering 1980-1997. The complete results of this study, with exhibits and expanded text analysis ...
Empirical Method for Determining DLOM
The vast majority of business appraisers still rely on the restricted stock studies to determine a discount for lack of marketability (DLOM) in their standard practice of valuing a closely held, noncontrolling interest. These studies, shown in Exhibit 1 ...
Have the Familiar ‘Levels of Value’ Changed?
“If you have absolute control, you obviously have no adjustment to value,” said Bob Grossman during his session, “Discounts and Premiums,” at the NACVA 2012 Annual Consultants’ Conference in Dallas in June. “But what about 95%? Is that worth as much as a ...
New Version of the NICE DLOM Method Now Freely Available
William Frazier (Weaver) has a new version of his nonmarketable investment company evaluation (NICE) method for estimating a discount for lack of marketability (DLOM). An Excel template for the revised version, aptly named NICE-R, is now available.
Wanted: better expert testimony - Appellate judge sees trend toward lawyers' recognition of need for competent experts
Before serving on the Oregon Appeals Court Bench, Judge William Riggs was Chief Judge of the Oregon Family Law Division . The American Society of Appraisers' Portland chapter November newsletter ...
NICE DLOM Method for FLPs Gets Peer Reviewed
A paper describing the theory and mechanics of the nonmarketable investment company evaluation (NICE) method for estimating a discount for lack of marketability (DLOM) has been published in the Business Valuation Review, the peer-reviewed journal of the American Society of Appraisers.
The NICE DLOM Method Gets a Few Shots in the Arm
The nonmarketable investment company evaluation (NICE) method, which first appeared in 2006, is included in leading valuation books but it has not gained much traction and had not appeared in any court cases—until now. Plus, a streamlined version of the model will be out soon, according to the method’s developer, William H. Frazier (W.H. Frazier & Co. Inc.).
Estimating a COVID-19 Marketability Discount for Small Businesses
A framework of thinking for developing a marketability discount for a majority interest on a small business in the wake of the pandemic.