Discount for Lack of Marketability (DLOM)
A reduction applied to the value of a private business to reflect the fact that its shares can't be sold quickly on an organized market, unlike publicly listed securities.
Definition
The discount for lack of marketability (also called illiquidity discount) is a value reduction applied when valuing a private business. It reflects a simple fact: an SME’s shares can’t be sold in a few clicks on a stock exchange. Finding a buyer, negotiating, and closing a transaction takes months, sometimes more than a year.
In French-language Quebec documentation, you’ll see escompte de non-liquidité used for the same concept.
Business valuators typically apply a discount of 15% to 35% relative to the value a comparable publicly traded business would carry. The exact percentage depends on the size of the business, the predictability of its revenues, and the attractiveness of its industry.
Why the discount for lack of marketability matters in a business sale
Any SME owner who has their business valued needs to understand that the marketability discount is systematically built into professional valuations. This isn’t a flaw in your business — it’s a structural reality of the private business market. If you compare your business’s value to that of listed companies in the same sector, the difference is largely explained by this discount.
The good news: a well-structured sale process reduces the practical effect of this discount. When several qualified buyers compete to acquire your business, effective liquidity increases — your business is, in practice, more “sellable” than an SME brought to market without preparation.
On the other hand, if you try to sell in a rush or without a competitive process, the actual discount can exceed the theoretical ranges. Time works against the unprepared seller.
What every seller should know
- The 15% to 35% marketability discount is an industry norm — it’s not a penalty, but an adjustment that reflects the reality of the private market.
- Smaller businesses, those with customer concentration or volatile revenues, face a higher discount within the range.
- A competitive sale process with multiple qualified buyers is the best way to reduce the practical impact of this discount on your sale price.
- When talking with a valuator or a broker, explicitly ask what discount rate was applied and on what basis — it’s a legitimate negotiation lever.