The Size of Discounts for Lack of Marketability for Privately Owned Firms

What is it about?

Using sales and profitability multiples for matched firms, this study calculates the median discount for lack of marketability and find that the discounts consistently exceed 50% and appear to be influenced by common financial factors such as size, profitability, and likelihood of financial distress.

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Why is it important?

The ongoing debate over what is an appropriate discount for lack of marketability (DLOM) among appraisers and court cases motivates us to conduct this study. The estimated DLOMs based on match-pair criteria of net sales and EBITDA indicate that DLOMs for privately owned firms are significantly higher than what is widely accepted in the business valuation community. While existing studies suggest that DLOM should be less than 50%, we find median DLOMs are consistently above 50%.