LiquiStat™
Database
Most
of the assets we value lack liquidity. Because they are illiquid,
such assets typically sell at a discount from their market price.
But how much of a discount is appropriate?
How does one determine the value of illiquid assets where no public
market readily exists?
While many factors may figure into the
selling price, the recent sale price of similar assets is especially
important. Just as real estate agents use the selling price of
other homes in a neighborhood to help determine the asking price
of a home that is just going on the market, Pluris Valuation Advisors uses sales of similar securities as a benchmark. And when valuing illiquid securities,
the prices of other illiquid securities provide the best comparison.
That's why our proprietary LiquiStat
database is so important. LiquiStat provides Pluris with comprehensive
data from comparative real-world illiquid securities transactions
that can be used to generate, document and support an opinion
of an illiquid asset's value. We have secured ongoing access to
this data through an exclusive licensing arrangement with our
affiliate, SecondMarket.
The LiquiStat database is a powerful
analysis tool that plays an important role in the valuation process
and provides us with a resource that's not available to other
valuation firms.
The LiquiStat database includes thousands of transactions, which is significantly more than the
number used in most studies. With several dozen transactions being added each month, the database is growing rapidly.
Restricted Stock. The
LiquiStat database has been analyzed by Pluris and the conclusions
from this analysis are incorporated in our valuation work.
The research
shows that restricted stock discounts are a function of the variance
of the stock, the block size valued, the trading price in the
market, and the remaining illiquidity period. These conclusions
will be updated as more data are added to LiquiStat.
Warrants. The data shows
that warrants trade at significant discounts from their Black-Scholes
model values -- much greater discounts than those for restricted
stock. The discounts are a function of the variance of the stock,
the delta of the warrant, a measure of how far the warrant is
into or out of the money, the block size, the market value of
the issuing firm and other factors. These conclusions will also
be updated as the LiquiStat database grows.
Convertible Securities. The LiquiStat database also shows significant trading
activity on the SecondMarket in convertible debentures and convertible
preferred shares. This data, along with the LiquiStat
database, helps us determine the appropriate
option-adjusted yield spreads for convertible
securities. The analysis should always consider the
price the convertible instruments are issued at, as
well as the warrant coverage and the percentage of the
total purchase price that is represented by the
warrant coverage. TOP^
LiquiStat™ PIPES Database
The LiquiStat database incorporates a study of PIPE
(Private Investments in Public Equity) transactions
compiled by Pluris, as well as private transactions in
restricted stock, warrants and convertible securities
that take place between investors using the SecondMarket platform.
The discounts (or yield spreads) in PIPE deals are
determined net of warrant coverage, which is a major
part of many PIPEs. Because of this, any analysis of
illiquidity discounts for private placements is
inadequate and misleading without proper data on the
fair value of the warrants issued. Because of our
LiquiStat database on warrant transactions, Pluris is
in a unique position to calculate the impact of
warrants on PIPE values. TOP^
LiquiStat™ ARS Database
Pluris has also recently begun compiling data on
buy-interests, sell-interests and transactions in
auction-rate securities. Such securities, once their
auctions have failed, typically yield the so-called
“maximum rate,” also known as the “penalty rate.”
However, penalty rates are often set low, reflecting
the commonly held belief when the securities were
issued that ARS auctions were extremely unlikely to
fail. Securities that lack the liquidity of
cash-equivalent securities, but carry “cash” interest
rates, virtually always sell at a discount. The
discounts vary based on how long the auctions are
expected to continue failing, the credit quality of
the issuer, the magnitude of the penalty rate and
other factors.
Click here to view the LiquiStat white paper
Check back frequently. Additional information
about this ground-breaking database, which includes transactions
for restricted stock, warrants and convertible securities, will
be posted soon. Our Press Room,
in particular, features new articles, studies, white papers and
other information as it becomes available.
For more information on how the LiquiStat
database can help you and your clients, please e-mail
us. TOP^
|
