This 9th post in a series titled “Deja Vu” addresses the inapplicability of pre-IPO discounts or studies in determining the value of illiquid minority interests of private businesses. Pre-IPO discounts are defined. There is a visual walk-through of a pre-IPO transaction and the subsequent IPO. And there is a “picture” of the distribution of actual pre-IPO discounts from a series of studies performed by John Emory beginning in the late 1970s. The picture should be clear. Pre-IPO discounts and studies cannot be used in credible determinations of marketability discounts.
This analysis of the FMV/Stout Restricted Stock Study is the eighth in a series of posts on the tried and true restricted stock studies relied on by appraisers for many years. This post, like the previous posts in the series, questions the use of restricted stock studies as a basis for determining marketability discounts for illiquid minority interests of businesses.
This post addresses the so-called Mandelbaum “benchmark analysis” which was created by Judge David Laro in his decision in Mandelbaum v. Commissioner. This analysis has received considerable valuation press. It is time that we examine it on a current basis.
This is the sixth post in a “deja vu” series focusing on the handful of famous restricted stock studies published by the mid-1990s based on transactions occurring through the 1980s. The post provides a convenient reference to each of the prior posts for reader convenience. This post addresses the Silber Study, the most transparent of all the early studies, and provides some very interesting insights.
In this “deja vu” series about the “old and tired” restricted stock studies, we are working our way through the leading early studies. We have already examined the SEC Institutional Investor Study, the Gelman Study, the Trout Study, and the Moroney Study. In this post, we examine the Maher Study. The story does not get better with repetition. So read on.
This is the fourth post in a series on the historical restricted stock studies that appraisers have referenced for many years and is a review of the Moroney Restricted Stock Study. The first three posts in the series addressing can be viewed: 1) SEC Rule 14 pre-April 1997, 2) the SEC Institutional Investor Study, and 3) the Gelman Study and the Trout Study. Moroney’s central finding was that the Tax Court had embraced the concept of marketability discounts, but had been reluctant to grant discounts commensurate with their economic reality in the marketplace.
In the first post in this Deja Vu series, we discussed the Securities and Exchange Commission’s Rule 144 from a layman’s perspective as of pre-April 1997, when the mandatory period of restriction was lowered from two years to one year. The second post reviewed the SEC Institutional Investor Study, which was published in 1969. This third post reviews two more of the early restricted stock studies: the Gelman Study and the Trout Study.
In this post, we review the SEC Institutional Investor Study. This review appeared in my book, Quantifying Marketability Discounts, which was published in 1997. That book introduced the Quantitative Marketability Discount Model (QMDM) as a method to develop marketability discounts using a shareholder-level discounted cash flow model. While introducing a new method for developing marketability discounts under the income approach, I felt it was important to have a solid review of the restricted stock studies, which provide a (not very good, in my opinion) method under the market approach. Read more about the SEC Institutional Investor Study here.
The levels of value chart is one of the most important descriptive figures for business valuation. In a previous post, we gave names to the “spaces” on this chart, which are familiar valuation discounts and premiums used by business appraisers. This post focuses on why those “spaces” exist and the economic factors that create the familiar discounts and premiums.
A new feature on ChrisMercer.net allows new subscribers to download a copy of my new eBook, What Revenue Ruling 59-60 Says (and Does Not Say) About FAIR MARKET VALUE. This post provides the opportunity for existing subscribers to obtain their copies of the new eBook.