Discount for Lack of Marketability


Discount for Lack of Marketability (DLOM) refers to the reduction in the value of an investment because it is not easily sold or traded on the market. When an investment is hard to sell quickly or at a fair price, it becomes less attractive to buyers. This discount is applied to account for the difficulty in converting the investment into cash. Factors like the absence of an established market, legal restrictions, or limitations on transferability can contribute to a lack of marketability. The DLOM is a percentage reduction from the estimated fair market value and compensates buyers for the risks and extra effort associated with owning an illiquid investment.

Further Explanation

Discount for Lack of Marketability (DLOM) refers to the reduction in the value of an investment or ownership interest due to its limited marketability or the difficulty of converting it into cash quickly and at fair market value. When an investment is not easily traded or sold on the open market, it may be less attractive to potential buyers, which can result in a discount being applied to its value.

Factors that contribute to a lack of marketability include the absence of an established market, legal restrictions, or the presence of specific conditions or agreements that restrict the transferability of the investment. For example, shares of a privately held company or restricted securities that cannot be freely traded on public exchanges may experience a lack of marketability.

The DLOM is typically expressed as a percentage reduction from the estimated fair market value of the investment. The specific discount rate is influenced by various factors, including the size of the investment, the expected time required to sell it, the volatility of the investment’s value, and the prevailing market conditions.

Applying a discount for lack of marketability recognizes the potential difficulties and risks associated with owning an investment that cannot be readily sold or traded. It serves to reflect the illiquidity of the investment and compensates potential buyers for the additional time and effort required to convert the investment into cash.

Why Appoint Valtech as Valuation Adviser?

Valtech’s team has provided valuation advice to over 200 listed companies in Hong Kong, China, Singapore, Taiwan, Australia, the United Kingdom, the United States and Germany.

Valtech Valuation is a professional valuation firm accredited with ISO-9001 in valuation advisory services. The financial market and valuation requirements are highly dynamic. We are determined to develop and maintain a quality management system to foster an environment which is sustainable and evolving continuously. Our founders stress on development of a system and an environment that our consultants are provided with necessary support and opportunities to thrive.

We are a team of professionals from multiple disciplines including audit, financial modelling, tax, internal control and surveying. Our management adheres professional excellence. Abundant resources are reserved to develop standardized policies and procedures for quality control. We have solid track record in valuation advisory for listed companies, private equity, fund managers and financial institutions. We work closely with big four and other international accounting firms, corporate financial advisors, fund managers and legal advisors.

Valtech Advantages:

Advanced Valuation Techniques: Valtech Valuation can develop and implement advanced valuation techniques that are specifically tailored to the needs of clients. These techniques can go beyond traditional valuation methods and incorporate factors such as market trends, industry benchmarks, and risk analysis to provide more accurate and insightful valuations.

Customized Valuation Models: Valtech Valuation can create customized valuation models that align with the unique investment strategies and asset classes. By understanding the specific requirements and objectives of these entities, Valtech Valuation can develop models that capture the nuances of their portfolios, resulting in more precise and relevant valuations.

Data-driven Insights: Valtech Valuation can leverage its access to comprehensive data sources and analytics tools to provide data-driven insights. By analyzing market data, economic indicators, and performance metrics, Valtech Valuation can offer valuable insights into the valuation of assets, identify emerging trends, and help inform investment decision-making.

Adherence to Compliance and Reporting Standards: Valtech Valuation can ensure that valuation practices adhere to regulatory compliance and reporting standards. By staying updated on relevant regulations, such as accounting standards and industry guidelines, Valtech Valuation can help clients meet their reporting obligations accurately and in a timely manner.