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By Espen Robak, CFA*
Everyone agrees that restricted and illiquid shares should be valued at a discount from their trading prices. But how do we measure the discount?
This issue is addressed by Espen Robak, President of Pluris, in the cover story of Valuation Strategies (January 2007). “Lemons or Lemonade? A Fresh Look At Restricted Stock Discounts,” presents a ground-breaking new study of the LiquiStat database, with major implications for how restricted securities are valued.
In the same issue of Valuation Strategies, editor John A. Bogdanski noted that “[t]raditional techniques for measuring the discount, in widespread use for many years throughout the business appraisal community, have lately been found wanting in several respects.” Pointing out how the Tax Court has been particularly active in this area, the editorial further states:
- Lemons or Lemonade? “advances the dialogue significantly”
- Data such as the LiquiStat data “has never been easy to come by”
- “Analyzing these transactions, the author arrives at some surprisingly large discounts, and he offers hope that future growth of the database will provide a foundation for more precise measurement of such value adjustments”
- “Even to those of us without ready access to his data, Robak’s article provides ample food for thought”
- “We are pleased to host part of this important discussion”
At Pluris, we are pleased to present you with this result of our research. And to keep you continually abreast of the latest data, future updates to our research will also be posted here. We hope this article provides you with greater insights into the market-based valuation of restricted securities, as well as the benefits of the LiquiStatÔ database.
Important Note: Since the publication of “Lemons or Lemonade?” our research has been updated and expanded to provide transaction data directly relevant to the valuation of warrants and non-qualified stock options (NQSOs). For the latest details on our research, read Discounts for Illiquid Shares or Warrants: The LiquiStat Database of Transactions on the Restricted Securities Trading Network.
For additional articles relating to valuation of illiquid assets, visit our press room.
If you have questions about valuation of restricted securities, or if you have securities you would like to have valued by Pluris Valuation Advisors, contact Espen Robak at any time. |
