Trading liquidity, relative block size, and the time required for an orderly disposition are central to marketability analysis.
AbbottModelDLOM evaluates trading liquidity and block size to develop an estimated post-restriction liquidation period using the selected public-company evidence.
The resulting period is an analytical estimate based on observed trading characteristics. It is not a prediction that a specific block would necessarily be sold within an exact number of days.
Liquidity and Marketability Are Related but Distinct Attributes
Marketability is a measure of extrinsic conditions, which are owner/market specific
- • Does an orderly market exist?
• What legal or contractual restrictions apply?
• Is transfer permitted at the valuation date?
Liquidity:is a. de facto question. The attributes are intrinsic to the asset being transferred.
- • How many realistic buyers exist?
• How long is an orderly sale likely to take?
• What execution risks and transaction costs arise?
Relative Block Size
A block cannot be evaluated solely by counting shares or measuring dollar value. A block that is small relative to normal trading activity may be easier to liquidate than a smaller nominal block in a security with limited trading volume.
The platform therefore evaluates block size relative to the observed trading capacity represented by the relevant public-company evidence.
Estimated Post-Restriction Liquidation Period
The estimated liquidation period reflects the relationship among the size of the interest being analyzed, applicable trading activity, the assumed capacity available to absorb the block, and the time required for an orderly disposition.
The driving factors for the liquidation period are:
- Relative size of the subject interest
- Applicable market value or block value
- Observed trading activity
- Assumed participation in available volume
- Time required for an orderly disposition
- Market- and quarter-specific conditions
The estimate provides a consistent marketability horizon for DLOM analysis. It does not assume that the entire interest would be sold immediately, nor does it guarantee that actual sales would follow the modeled timing.
Lambda and Liquidation Period
In an orderly liquidation, each holder has access to market volume in proportion to the holder’s remaining share of the outstanding float. As the block is sold down, the seller’s share of the available market volume declines as well. That makes the liquidation pattern naturally front-loaded and supports the use of an exponential-decay framework. Transfer rate per period (λ ) is defined as
- λ = ln(S) – ln(S – V)
- where:
- S = relevant share base
- V = volume transferred per period
Liquidation Period
The weighted liquidation period with exponential decay is the average liquidation time when later sale dates are given progressively less weight by an exponential function.
In general, if liquidation can occur over time t with weight , then the volume weighted average liquidation period (VWALP) for the whole and the volume weighted average time to liquidation of a block less than 100% (Tblock) can be expressed as
- VWALP = 1 / λ
- For a block of size b, expressed as a fraction of shares outstanding, the block liquidation period is:
- Tblock = -ln (1 – b) / λ
In case of regulatory or conractual restrictions on transfer of ownership, the period of liquidation can start only after the expiration of such restrictions.
Total Delay
Total delay recognizes that an investor may achieve full liquidation in two phases. A legal or contractual restriction may prevent disposition for an initial period, after which additional time may be required to liquidate the block in an orderly manner.
Total delay = restriction period + post-restriction block liquidation period
The restriction period (Trestriction) represents the time during which disposition is legally or contractually constrained. Tblock represents the estimated additional time required to dispose of the interest after that restriction ends.
Both components must be expressed in consistent time units before they are combined. For example, periods measured in trading days and calendar days must be converted to a common basis before the total delay is used as an annual model horizon.
Avoiding Double Counting
Lambda, VWALP, and Tblock are connected measures describing the same underlying liquidity and liquidation process. They should not be treated as separate premiums or added independently to a DLOM conclusion.
The liquidity evidence informs the estimated liquidation horizon. That horizon then enters the applicable DLOM model. Adding a separate liquidity premium after using the same liquidity evidence to determine Tblock could count the same economic effect twice.
Quarter-Specific Measurement
Trading activity can change substantially over time because of market conditions, regulatory changes, company events, investor attention, public float, and changes in normal trading volume.
AbbottModelDLOM therefore develops liquidity and block-liquidation evidence using information associated with the selected valuation quarter. Historical trading evidence provides a market-based analytical anchor, but it does not guarantee the timing or price of an actual sale.
Role in DLOM Analysis
Total delay provides an analytical horizon for models that evaluate the economic effect of restricted or delayed liquidity. A longer supported horizon generally exposes the holder to a longer period of price uncertainty and restricted access to cash.
For DLOM analysis, the applicable horizon may include both the restriction period and the post-restriction block liquidation period. A standalone blockage analysis uses only Tblock because it measures the period required to liquidate the block after disposition becomes legally permissible.
The appropriate DLOM depends on the model’s structure, volatility input, information assumptions, and facts of the assignment. A longer or shorter estimated delay does not, by itself, prescribe a particular discount.
Application to Closely Held Companies
A closely held subject company does not have directly observable public trading history. The platform therefore uses the selected public-company reference cohort to provide market-based liquidity and liquidation-period evidence.
The analyst remains responsible for determining whether the cohort evidence is relevant to the subject interest and whether company-specific facts support an alternative interpretation.
Interpretation and Professional Judgment
Achieved liquidity may be affected by ownership concentration, market disruptions, information asymmetry, negotiated transactions, legal limitations, investor availability, and the seller’s execution strategy.
Lambda, VWALP, Tblock, and total delay should therefore be interpreted as connected, market-informed analytical measures—not as guaranteed transaction timetables or separate, stand-alone DLOM adjustments.