Definition
The Discount for Lack of Marketability (DLOM) reduces value to account for the difficulty of selling an illiquid asset quickly without a price concession. Private company shares, restricted stock, and real estate in thin markets all warrant liquidity discounts. DLOM typically ranges from 15-35% and is estimated using restricted stock studies, pre-IPO studies, or option pricing models.
lightbulb Example
A private company is valued at $50M based on comparable public company multiples. A 25% DLOM is applied: $50M × (1 - 0.25) = $37.5M adjusted value, reflecting the difficulty of selling private shares.
verified_user Key Points
- Typically 15-35% for private companies
- Based on restricted stock and pre-IPO studies
- Longer expected holding period increases discount
- IPO or acquisition reduces liquidity risk