Regular readers of this blog know at least two things. First, I have not posted much in recent months, and second, I have written about walking off and on for years. In this post, we look at several aspects of walking programs including how the idea of 10,000 steps per day came to be.
On December 15, 2019, I made a decision that, with follow-through, has been life-changing. I decided that I would walk 10,000 steps per day and hoped to bring my body back into more reasonable condition and health. The program that has worked for me is more than a walking program, although that is what I have called it. The program is a combination of exercise (walking and other, including pickleball) and diet that, working together, have enabled me to get to more realistic weight and health levels than when it began in late 2019.
Yesterday represented an important milestone for me. It marked the 5th anniversary of a walking program that I began on December 15, 2019. These “walking” posts have nothing to do with business appraisal, but writing them over the past five years has helped me maintain focus on my program and goals. Many people have told me that reading these posts has encouraged them to begin walking programs of their own. Here is my latest progress and hopefully it will be another encouragement to you to either start a program of your own or continue on the one you’ve already begun. I’m looking forward to the next five years of my walking program.
I began a regular walking program in 2019, just before the COVID-19 panic set in, or about 4 years and 10 months ago. I’m frequently asked the question: “Are you still walking?” The short answer is “Yes,” but life has a way of interfering once in a while!
Something triggered my thinking about my days as a bank stock analyst with Morgan Keegan & Company in Memphis (now part of Raymond James) in the late 1970s and early 1980s. I was asked by Morgan Keegan’s top equity salesman, G Walter Loewenbaum, II (“Wally”), to travel to London, Edinburg, and Paris, to call on some of Wally’s institutional clients. I asked him a very important question, “What is the secret of your success?” and he shared two secrets of professional success that I have never forgotten.
My musings on the use of restricted stock discounts to estimate marketability discounts (or DLOMs) have led me to the conclusion: Restricted stock studies/discounts cannot be used to estimate DLOMs in any credible, standards-compliant manner. This fifth post in the musings series takes a look at the usefulness of pre-IPO discounts in estimating marketability discounts.
Following “Mercer’s Musings” 1-3, Mercer’s Musing #4 examines the guidance found in “Procedural Guideline -2 (PG – 2) Valuation of Partial Ownership Interests” in the ASA Business Valuation Standards. Procedural Guidelines (PG) are designed to provide more detailed guidance for consideration by business appraisers than found in the base standards themselves.
There is a great deal more to valuing illiquid minority interests than “guessing” at a marketability discount based on vague references to dated and non-comparable restricted stock transactions or studies. All appraisers would be well-served to read PG – 2 Valuation of Partial Ownership Interests in the ASA Business Valuation Standards. Doing so should provide a different and more realistic view of the valuation of illiquid minority interests of private companies than is held by many appraisers.
In Mercer’s Musings #3, I address this basic quantitative derivation of marketability discounts for Companies A and B. As valuation is a function of expected cash flows, growth, and risk, any methodology failing to account for these factors is inadequate. Through a hypothetical comparison of two identical corporations with differing minority interests, I emphasize the value of a nuanced approach to valuation, suggesting that reliance on outdated averages from restricted stock studies is insufficient for accurate marketability discount estimation.
In “Mercer’s Musings #2,” the focus shifts to the examination of restricted stock studies and their application in determining marketability discounts for gift and estate tax appraisals, offering valuable insights for appraisers across all credential spectrums. Highlighting the inherent challenges of such studies, I underscore the lack of economic relevance these studies hold in contemporary valuation scenarios, particularly emphasizing their disconnect with current private company valuations. Through an analysis and a hypothetical valuation scenario, I invite readers to explore the nuanced complexities of applying marketability discounts, advocating for a quantitative approach informed by common sense, judgment, and reasonableness.
Many years ago, I wrote a column for the Business Valuation Review that the editor, Jay Fishman, FASA, called “Mercer’s Musings.” In this blog and with this post, I reintroduce “Mercer’s Musings” because I would like to reflect on a number of seemingly unsettled issues in the business valuation world. This first musing relates to the need (or not) to comply with the Uniform Standards of Professional Appraisal Practice promulgated by The Appraisal Foundation in gift and estate tax appraisals prepared for the Internal Revenue Service.
