A few weeks ago, as part of the Ipreo Blog’s ongoing mission to feature insight and analysis from across Ipreo’s different business units, we shared the first in a series of posts on DLOM, a discount for lack of marketability.
Authored by Matt Pringle (CPA/ABV), a Valuation Analyst with Ipreo Private Capital Markets who specializes in business and securities valuation engagements for corporate finance, financial reporting and tax purposes, When to Apply a DLOM explored the challenges private companies face when determining when and where to apply the aforementioned discount to equity shares.
Today Matt returns to build on the previous post and delve deeper into the topic. His latest entry covers the “incremental DLOM,” how it applies to company valuations, and how this concept differs between ASC Topic 820 and 409a valuations.
An incremental DLOM is utilized in those cases where the valuation expert determines that there is a difference between the liquidity of the common stock and preferred stock holdings of a company. In layperson’s terms: if the common stock is harder to sell than the preferred—even when taking into account a lower value—the common likely needs an “incremental DLOM” component to address this lack of liquidity.
Read the full Special Report – Incremental DLOM: A Bridge Too Far?