Stout Warns Against Simple Benchmarks for DLOM

Stout Warns Against Using Simple Benchmarks for DLOM:

A Comprehensive Review

Source Verified and Credited to BVR Webinar and Stout Research

In a recent Business Valuation Resources (BVR) webinar, Patrick Polomsky, a professional at Stout and manager of the Stout Restricted Stock Study database, shed light on the limitations of using simplistic benchmark averages to estimate a discount for lack of marketability (DLOM). This article verifies and credits information directly from the BVR webinar and accompanying resources.

Why the “Benchmark Average Approach” Falls Short

Polomsky explained that the traditional method of estimating DLOM—by averaging data from restricted stock studies, including the Stout study—can be problematic. This approach relies heavily on generalized data and neglects the unique financial characteristics and market dynamics that significantly influence the DLOM for any given company. As courts have increasingly recognized these limitations, experts are being urged to adopt more tailored and robust methodologies.

This critique highlights that applying broad benchmarks risks oversimplifying complex valuation processes. Analysts should instead focus on the specific attributes of the subject company, such as financial performance, volatility, and market positioning.

The Stout Calculator: A Tailored Approach to DLOM

To address these issues, the Stout Restricted Stock Study introduces a more refined methodology for DLOM estimation, incorporating the unique attributes of the subject company and current market conditions. The Stout Calculator, a tool aligned with this approach, emphasizes:

1. Financial Characteristics: The calculator accounts for company-specific financial factors that influence marketability discounts.
2. Market Volatility: It integrates the dynamic nature of the market into the analysis.
3. Qualitative Analysis Integration: It complements qualitative frameworks, such as the Mandelbaum factors, ensuring a more comprehensive valuation report.

The calculator’s outputs can also be included as appendices to valuation reports, enhancing their credibility and alignment with judicial expectations.

Updated Guidance for 2024: A New Companion Guide

Further supporting this refined methodology, the 2024 edition of the Stout Restricted Stock Study Companion Guide has been released. The guide includes updated tables and graphs based on new transactions, offering robust empirical data for DLOM analyses. Business Valuation Resources surveys indicate that the Stout database remains the most widely used resource for restricted stock transactions in the industry.

Credited Resources for Verification

This article is based on credible sources, including:

• BVR Webinar: A free, publicly available webinar where Patrick Polomsky discussed the limitations of simple benchmarks and the enhanced approach offered by the Stout study. Access the webinar here.
• Stout Restricted Stock Study Companion Guide: The 2024 guide, which includes updated empirical data supporting DLOM calculations, is available for free download here.
• BVR Surveys: Business Valuation Resources surveys validate the widespread use and credibility of the Stout database.

Final Thoughts

The emphasis on company-specific factors and dynamic market conditions represents a significant shift in how analysts should approach DLOM. By moving away from simple benchmarks and adopting tools like the Stout Calculator, professionals can produce more accurate and defensible valuations. To learn more, download the companion guide or view the BVR webinar for a deeper dive into these methodologies.

This information has been verified and credited to BVR resources and the insights shared during Patrick Polomsky’s webinar.

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