The Independent Stock Market provides the owners of privately-held businesses the benefits of a public offering while significantly reducing the expense, time to market, and other challenges of the traditional markets. One of those benefits includes increasing the valuation of their company.
Certified valuators determine the value of a company by reviewing several risk factors. When their assessment is almost complete, one of the last questions they ask is if the company that is being valuated is a privately held company, a publicly held company, if it is a company that shortly will become public, or if it is returning from being public to becoming privately-held again.
Privately-held companies that have no plans in the near future of becoming publicly traded receive what valuators refer to as a “Lack of Marketability Discount.” Over the last 40 years, the average discount valuators have given privately held companies is about 30%. This means that a $10 million dollar company that is private, on average, would only be valued at $7 million dollars.
The reason why valuators make this significant discount is because the potential purchasers of the company have limited opportunities were they to try to sell the company at a later date. When a company is publicly traded, the buyer could simply sell off a portion or all of his stock in the company to the general public and thereby retake his investment – hopefully at a profit.
Privately-held company owners would have to wait for another buyer in order to retake their investment. The Lack of Marketability Discount protects the buyer from paying full price for a company that he might not be able to sell when or if he ever wanted to sell it.
The Independent Stock Market provides all of the benefits of the public market, including the removal of the Lack of Marketability Discount (and other discounts) with none of the stress!