Dear Clients and Colleagues:
It’s taking longer for private companies to sell and this could have an impact on Marketability Discounts.
A newly updated analysis of data from BVR’s Pratt’s Stats reveals that the time needed to market and sell a privately held business is 211 days, up from 200 days in the previous analysis.
The latest annual update of an ongoing study, Marketing Period of Private Sales Transactions, examines a database of 7,928 private company sale transactions from BVR’s Pratt’s Stats database. The population of the transactions occurred from February 1992 through the end of 2011.
The business valuation concept of marketability deals with the liquidity of the ownership interest; that is how quickly and with what certainty an owner can convert an investment to cash. It is appropriate in the valuation of most privately held businesses to discount the total enterprise value for this lack of liquidity in order to arrive at the company’s fair market value.
The uncertainty involved with liquidity is reflected in business valuations by the Discount for Lack of Marketability (DLOM). The DLOM can be substantial, ranging at times from 30% – 40%, and many factors contribute independently to its determination.
At Stevenson Valuation Group we explore and have experience in analyzing the key contributors to Marketability. For more information, please contact us.
If you have any questions about this article, please don’t hesitate to contact me.
Thomas G Stevenson, CPA, CVA