Guide to Discounts for Lack of Marketability

  • ID: 1381285
  • Book
  • Region: United States
  • 396 Pages
  • Business Valuation Resources
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As most business appraisers know, there is wide divergence about the discount for lack of marketability (DLOM) and the methods used to determine it. The new edition of BVR's Guide to Discounts for Lack of Marketability, authored by John Stockdale, Sr., contains a new treatise on the theories, evidence, and techniques for determining DLOM. It is a first step toward a more consistent practice.This valuable resource also contains hundreds of the most important court case abstracts involving DLOM and features a comprehensive and easy-to-read summary table.

Highlights of this new edition include summary and analysis of:

- Practitioner methods
- Comparative factor analysis and methods for tiered entities
- Volatility
- Disposal period
- Controlling interests
- DLOM court cases
- Restricted stock studies, pre-IPO studies, and minority public stock evidence (including LEAPS and Bid-Ask spread)
- Matched Pairs Approach and discounts in private companies
- Computational models and method
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Chapter 1 Fundamentals of the DLOM
- History of the DLOM
- The Need for a DLOM
- Requirements of Valuation Standards
- Theory of the DLOM
- Definition of the DLOM
- Mathematical Statement of the DLOM
- The Concept of Base Value
- Levels of Value
- Relevant Markets
- Characteristics of the Markets
- Summary of Liquidity Propositions
- Empirical Studies
- Studies providing evidence of the DLOM

Chapter 2 Restricted stock studies
- Summary of Restricted Stock Studies
- Analysis of the Distribution of Restricted Stock Discounts
- Other Recent Studies
- Revenue Ruling 77-287
- Limitations of Restricted Stock Studies

Chapter 3 Pre-IPO Studies
- Emory Business Valuation Studies
- Valuation Advisors Database
- Willamette Management Associates Studies
- Criticisms of pre-IPO Studies
- Statistical Analysis of Valuation Advisors Pre-IPO Data

Chapter 4 Other Minority Public Stock Evidence
- Event Studies
- LEAPS – Long Term Equity Anticipation Securities
- Publicly traded shares in private equity funds
- REIT Price/Net Asset Value “Discounts”
- Bid-Ask Spread

Chapter 5 The Private Company Discount and Matched Pairs Approach
- Phillips and Freeman Study
- Koeplin, Sarin, Shapiro Study
- De Franco, Gavious, Jin and Richardson Study
- Officer Study
- Block Study
- Harjoto and Paglia Studies

Chapter 6 Discounts in Private Companies
- Coolidge Private Company Study
- Secondary Trades of Publicly Registered Limited Partnership Units
- Partnership Profiles Data about Secondary Trades
- The Secondary Market for Private Equity Investments
- Pepperdine Private Capital Markets Project Survey II Winter/Spring 2010

Chapter 7 Factors Affecting the DLOM
- Analysis of Factors from 13 Restricted Stock Studies
- Two Other Important Factors – Industry and Dividends
- Industry in which the company operates.
- Dividends
- Basic Approach for Applying the DLOM
- Several Observations about Discounts in the FMV database
- Effect of Rule 144A and Change in SEC Holding Periods
- Effect of Registration Rights
- Comments about Block Size

Chapter 8 Summary of DLOM Evidence
- Computational Models and Methods

Chapter 9 Volatility Models
- The Chaffe Put Option Model
- Longstaff Lookback Put Option
- Finnerty Average Strike Put Option
- Meulbroek CAPM
- Tabak CAPM

Chapter 10 Practitioner Methods
- Economic Components Model
- VFC Longstaff Methodology
- The Quantitative Marketability Discount Model
- Rate of Return Method
- Time Model
- The NICE Method

Chapter 11 Comparative Factor Analysis
- Mandelbaum Comparative Factor Analysis
- Comparative Analysis of Restricted Stock (FMV CARS)
- The Bajaj Method of Analysis
- The Burns Method of Analysis

Chapter 12 Methods for Tiered Entities
- Evidence Regarding Discounts in Tiered Entities
- Tax Court Cases Regarding Discounts in Tiered Entities
- Income Approach
- Asset-Based Approach
- Application Notes

Chapter 13 Which Computational Method Should Be Used?Chapter 14 Disposal Period

- Disposal Period for Controlling Interests
- Howard Frazier Barker Elliott Partnership Retirement Study
- Time to Sell a Minority Interest in a Private Operating Company
- Appendix A- Statistical Analysis of Time to Sale in Pratt's Stats and Bizcomps

Chapter 15 Estimation of Volatility
- Getting at Volatility Through Rate of Return
- Use of Guideline Companies
- General Range of Volatility of Public Companies

Chapter 16 DLOMs for Controlling Interests
- Evidence of Controlling Interest DLOMs
- Controlling Interest DLOMs in Tax Cases
- Theoretical Basis for Controlling Interest DLOMs
- Arguments Against Controlling Interest DLOMs
- Computational Models
- Example Use of Time Model to Determine a Controlling Interest DLOM

Chapter 17 Theory and Evidence
- The Gap Between Available Evidence and Private Companies
- Analysis of Restricted Stock Data Based on Theory
- Appendix A- Development of the Sigma Time DLOM Model to Connect Theory and Evidence

Chapter 18 Conclusion – Where We Are with DLOMs
- What we do have
- What we do not have
- A suggested overall procedure to determine a DLOM

Summary Table of DLOM Court CasesCourt Case Abstracts-
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