Introduction to the QMDM: The Shareholder Level of Value

The Quantitative Marketability Discount Model (QMDM) is a shareholder level discounted cash flow model standardized to accommodate the valuation of nearly all nonmarketable minority interests. Shareholder level valuation is driven by the same factors as enterprise level valuation: expected cash flow, growth, and risk. The QMDM provides a standardized format for analysing, projecting, and discounting relevant shareholder cash flows that are applicable to almost any subject nonmarketable minority interest. Non-marketable minority interests are generally worth less than the corresponding pro rata portion of enterprise value because of a combination of agency costs (which can affect both the level of, and growth rate in, cash flows) and incremental holding period risks (which cause the required holding period return to exceed the enterprise discount rate).