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COREVALUATION​

CORE Insights

Timing and access is everything: making the case for discounts 

Understanding the Discount for Lack of Marketability (DLOM)

The Discount for Lack of Marketability (DLOM) accounts for the significant valuation gap between publicly traded stocks—which benefit from an immediate, active market—and privately held interests, where no such liquidity exists. In any fair-market transaction, a willing buyer will demand, and a willing seller will accept, a price reduction to compensate for the inability to quickly convert a private security into cash.

How Marketability is Measured

Professional appraisers quantify these discounts by leveraging empirical data from two primary sources:

Restricted Stock Studies: These analyze the price difference between a public company’s freely traded shares and its "restricted" shares (which cannot be sold on the open market for a specific period). This price gap serves as a benchmark for the cost of illiquidity.

Pre-IPO Studies: These compare the prices of shares sold privately just before an Initial Public Offering to the prices achieved once the company goes public. The difference in these prices represents the premium the market places on liquidity.

The Challenge for Private and Family-Owned Entities

In today’s economy, many businesses are family-owned and operated across a diverse range of industries. These entities are often structured with minority shareholders whose interests are further restricted by governing documents that limit the salability and transferability of shares.

Determining the value of these interests poses unique challenges. However, the core hypothesis—supported by extensive research and decades of court cases—remains clear: An investment that can be liquidated instantly is worth more than one that cannot.

Strategic Applications

These valuation nuances are critical in several high-stakes areas, including:

Gift and Estate Tax Planning

Generation-Skipping Transfer (GST) Tax

Income and Property Tax Valuations

Taxation Disputes and Litigation

At Core Valuation, we partner with attorneys and families to develop robust valuation strategies that protect your wealth and withstand IRS scrutiny. Let us help you navigate these complexities to reach your long-term goals.