Gift, Estate, & Income Tax Compliance
2021 01 Value Matters

April 1, 2020

Mercer Capital’s Value Matters® 2020-04

The 1991 Silber Study of Restricted Stock Discounts

We Should Have Known Then

Excerpted from www.ChrisMercer.net Blog

By the time I came into the business valuation profession, appraisers recited a small number of restricted stock studies to conclude that typical discounts were in the range of 25% to 45%, and therefore, that marketability discounts for illiquid minority interests of private companies should be in that range, as well.

But Professor William L. Silber wrote an article in the respected Financial Analysts Journal that told a different story.1  However, business appraisers ignored wisdom found in the Silber Study and only took its conclusion that the average discount in the study was 34% as confirming of the existing lore.

Summary statistics from the Silber Study are provided in Exhibit 8.4 of our forthcoming book, Business Valuation: An Integrated Theory, Third Edition (Mercer & Harms, Wiley 2020), which is available for purchase on Amazon.com. Exhibit 8.4 is reproduced on page 3 of this newsletter.

But wait, there’s more.  Professor Silber looked at his sample of 69 restricted stock discounts and noticed a distinct difference between the companies that had lower discounts (less than 35%) and higher discounts (greater than 35%).  The study provided additional color as found in Exhibit 8.5 (on page 3 of this newsletter).

What a difference a more informed look makes.  The average for transactions with discounts exceeding 35% was 54%, while the average for transactions with discounts less than 35% was 14%.  What could have caused this difference?  Professor Silber provided summary statistics for the two subgroups.  Simply put, the companies with lower discounts were just more attractive in terms of cash flow, perceived risk, and likely expected growth than the companies with higher discounts.  They were larger in terms of revenue and market capitalization and more profitable than the companies in the larger discount sample.

A picture is helpful.  I wrote about the Silber Study in Quantifying Marketability Discounts (which introduced the QMDM) in 1997 and provided a chart similar to Exhibit 8.6 from the new book (on page 3 of this newsletter).

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June 2026 | Complex Capital Structures in Transfer Tax Planning: A Valuation Perspective
Value Matters® June 2026

Complex Capital Structures in Transfer Tax Planning: A Valuation Perspective

Capital structures of privately held businesses have become increasingly sophisticated in recent years. Once the preserve of venture capital and large private equity transactions, complex capital structures now appear regularly in family-owned businesses, founder-led companies, and real estate holding and other closely held investment companies.
WEBINAR: Complex Capital Structures in Transfer Tax Planning-A Valuation Perspective
UPCOMING WEBINAR: Complex Capital Structures in Transfer Tax Planning - A Valuation Perspective
This program examines the increasing prevalence of complex capital structures in privately held businesses and the valuation challenges they present in gift, estate, and transfer tax planning.
Mercer Capital to Sponsor TexasBarCLE’s 50th Annual Advanced Estate Planning & Probate Course
Mercer Capital to Sponsor TexasBarCLE’s 50th Annual Advanced Estate Planning & Probate Course
Mercer Capital is pleased to sponsor TexasBarCLE’s 50th Annual Advanced Estate Planning & Probate course, taking place June 3 -5, 2026, at the Hyatt Regency Frisco-Dallas. J. David Smith, CFA, ASA, and Andrew B. Frew, ASA, ABV, will attend on behalf of the firm.Hosted by TexasBarCLE and cosponsored by the Real Estate, Probate & Trust Law Section of the State Bar of Texas, the annual course brings together estate planning and probate professionals for three days of focused education and discussion. This year’s agenda includes sessions on case law updates, fiduciary issues, grantor trusts, retirement benefits, will contests, and current developments in estate planning tax law.David Smith is a Senior Vice President at Mercer Capital and a senior member of the firm’s tax practice. He provides valuation services for tax planning, transactional purposes, and financial reporting, with particular experience in industries including financial services, oil and gas, and biotechnology. David is also a regular contributor to Mercer Capital’s Value Matters Newsletter.Andrew Frew is a Vice President at Mercer Capital and has nearly 25 years of business valuation experience. He has been involved with hundreds of valuation and related engagements across numerous industries and values businesses and business interests for gift and estate tax, charitable giving, buy-sell agreements, mergers and acquisitions, business succession and exit planning, and litigation support purposes.Mercer Capital regularly assists attorneys, fiduciaries, and advisors with valuation matters that arise in estate planning, probate, tax planning, and related disputes. The firm is pleased to support programs that help professionals address the financial issues that often accompany trusts, estates, and closely held business interests.Mercer Capital looks forward to connecting with attendees in Frisco. Additional information about the course is available through TexasBarCLE: https://www.texasbarcle.com/.

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