Day 5 – Valuation Discounts: An Attorney’s Guide To Understanding Business Valuation
In this episode of the Forensic Perspectives podcast, host Mark S. Gottlieb gives us an overview of how valuation discounts are used in business valuation, and a detailed look at two primary types: DLOC and DLOM.
Episode Highlights:
What are the two primary types of valuation discounts? (0:20)
What four components is DLOC dependent upon? (0:30)
Mark discusses investor’s control expectations and control prerogatives. (0:55)
How do we quantify DLOC? (1:10)
What is a discount for lack of marketability? (1:25)
Mark breaks down how a sample valuation would be computed. (2:55)
Key Quotes:
“Control generally has certain prerogatives with it. Some of these are the rights to appoint management, to pay dividends, to direct business strategy, to set compensation and to divest assets.” – Mark Gottlieb
“Marketability is defined as the ability to convert the investment or the business into cash. And generally, that conversion happens in three days or less.” – Mark Gottlieb
“Often when we’re evaluating a controlling interest, we either will not take a discount for marketability, or take a rather modest discount when compared to what would have been used if a minority interest would have been calculated.” – Mark Gottlieb
