DLOM (Discount for Lack of Marketability)
DLOM (Discount for Lack of Marketability) a percentage reduction applied to a company's value to account for the difficulty of selling private company shares.
DLOM quantifies the gap between theoretical value and actual marketable value of privately held business interests.
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How DLOM Works
The Discount for Lack of Marketability (DLOM) reflects the challenges private company owners face when attempting to sell their shares compared to public company shareholders who can easily trade stocks.
Valuation professionals use multiple methodologies to calculate DLOM, including restricted stock studies, pre-IPO studies, and option pricing models. Each approach provides insights into the potential discount based on the company's specific characteristics.
Factors influencing DLOM include company size, financial performance, industry dynamics, ownership restrictions, and distribution policies. The more challenging it is to sell shares, the higher the potential discount.
Key Points
- •DLOM represents the cost of illiquidity for private company shares
- •Multiple calculation methods exist, with discounts typically ranging from 15% to 50%
- •Larger, more stable companies typically have lower marketability discounts
- •DLOM is critical in gift, estate, and shareholder buyout scenarios
- •Reducing underlying factors can minimize the marketability discount
Frequently Asked Questions
Related M&A Concepts
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