Another critic of restricted stock studies (and pre-IPO studies), Mukesh Bajaj, attempted to isolate the DLOM.
In Litchfield, the Tax Court rejected the taxpayer's DLOM of 36% and 29.
As with the DLOM, the appraiser's skill in relating the sample of dosed-end funds used to not only the asset type but also the size and other attributes of the assets of the entity being valued is critical.
In such a setting, two issues arise: whether such strongly illiquid stocks have market value, and, if so, what would the DLOM represent.
In the end, the in-exchange value of stocks is determined by the discounted value of cash flows that are expected to accrue on them, and the DLOM reflects the difference between the value of an illiquid stake (the present value of all expected payoff) compared to the value that they would have if they were traded on the public exchanges (highest and best use based valuation given the pro rata distributions of equity payoffs).
His publications offer a deductive framework, called the quantitative marketability discount model, for determining DLOMs.
Also not uncommon in tax valuation cases, the Tax Court disagreed with both appraisers and determined its own DLOM percentage.
The magnitude of the DLOM allowed by the Court should be informative to valuation practitioners.
77% DLOM was appropriate, while Schneider concluded that a 20% DLOM was appropriate.
The FMV DLOM
Calculator[TM], developed by FMV Opinions Inc.
The Pluris DLOM Database offers valuators the best data on marketability discounts available today," said David Fein, ValuSource CEO.
The Pluris DLOM Database provides the most in-depth and up-to-date source of data from restricted stock transactions available to the valuation profession for estimating this discount.