Valuation Advisors Lack of Marketability Discount Study

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The Valuation Advisors Lack of Marketability Discount Study™ is a comprehensive empirical resource developed by Brian K. Pearson of Valuation Advisors, LLC. It is designed to assist valuation professionals in quantifying discounts for lack of marketability (DLOM) by analyzing pre-initial public offering (pre-IPO) transactions.

1. Data Sources and Methodology
The study focuses on comparing private stock transaction prices to subsequent initial public offering (IPO) prices to determine the impact of marketability on valuation.

• Pre-IPO Transaction Data: The study collects data on private stock transactions that occurred prior to a company’s IPO. These transactions include sales of common stock, common stock options, and convertible preferred stock.
• IPO Pricing Information: The IPO prices are obtained from public filings and financial databases, providing a benchmark for marketable securities.
• Discount Calculation: By comparing the prices of private transactions to the IPO prices, the study calculates the implied discounts attributable to the lack of marketability.

This methodology assumes that the difference in pricing between pre-IPO private transactions and the public offering reflects the marketability discount.

2. Application in Valuation

Valuation professionals utilize the Valuation Advisors study to:

• Estimate DLOM: Apply empirical data to support discounts for lack of marketability in valuations of privately held companies.
• Benchmark Analysis: Compare subject company characteristics to those in the study to determine appropriate discounts.
• Support Valuation Conclusions: Provide empirical evidence to substantiate valuation assumptions and conclusions, particularly in regulatory or litigation contexts.

Available from: BVResources.