Equity DLOC/DLOM question question

IAmNeil

True or false: If you are valuing a noncontrolling equity interest then there will be a discount for lack of control DLOC?

I think it's true.

If it is true, that means if you are valuing a controlling equity interest, then there will NOT be a discount for lack of control?

Does that sound correct?

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How do we decide whether or not a DLOM discount for lack of marketability is applied?

tikfed

there is a chart in the CFA text that explains when to use DLOC and when not to - I dont have the book in front of me but that should answer your question. If my memory is working, I think you use it with GPM and sometimes with PTM but never with GPCM

SeanWest

It depends. If your using Guidline transaction method which assumes you are buying a controlling interest you would add a DLOC.

If your using one of the other methods, forgot the name, the method assumes you're buying a small portion of the company and you wouldn't add a discount. Its already assumed. If were to buy a controlling share/whole company you would need to add control premium.

maryli

That has to depend on the basis that you are using for your valuation. If you are using a public equity value and you are valuing a non-controlling interest, you do not need to apply a DLOC, because holding a public equity is usually a non-controlling position. On the other hand, if you are using a private equity value from another similar company (such as the guideline transaction method) which is from a controlling perspective and valuing a non-controlling interest, then you need to apply a DLOC.

busterbluth

The chart is something like this:

Valuing a controlling interest when comparable was for minority interest = add control premium

Valuing a controlling interest when comparable was for majority interest = no adjustment necessary

Valuing minority interest when comparable was for minority interest = no adjustment necessary

Valuing a minority interest when comparable was for controlling interest = add discount for lack of control

benbenxiong

when do we subtract the DLOC?

SpyAli

I see. Very well said. I wish everybody would explain things as clearly as just did. Good luck on saturday.