Discounts for Lack of Marketability (DLOM): Key to Accurate Business Valuation in 2025

When it comes to valuing private businesses in Australia, one of the most debated—and misunderstood—concepts is the Discount for Lack of Marketability (DLOM). As 2025 brings new economic challenges and regulatory shifts, understanding DLOM is more crucial than ever for business owners, investors, and anyone considering a private equity transaction. But what exactly is DLOM, and why does it matter so much in the world of business valuation?

Why Marketability Matters in Valuation

Marketability refers to how quickly and easily an asset can be converted into cash at a fair price. Publicly traded shares on the ASX are highly marketable—you can sell them almost instantly at the current market price. But private company shares? Not so much. They often come with restrictions, limited buyers, and drawn-out sales processes. That lack of liquidity makes them inherently less valuable than their public counterparts.

This is where DLOM comes in. Valuers apply a DLOM to adjust the value of a private business interest, reflecting the time, effort, and uncertainty involved in selling it. In Australia, the application of DLOM has become increasingly sophisticated, with 2025 seeing more granular approaches informed by both international best practices and local market data.

How DLOM Is Calculated: Approaches in 2025

Calculating the right DLOM is part art, part science. In 2025, Australian valuers rely on a mix of empirical data and professional judgment. Here are the main approaches:

• Empirical Studies: Analysts often look to US-based restricted stock and pre-IPO studies, which compare prices of restricted versus freely tradable shares. While these studies provide a starting point, Australian practitioners must adjust for local factors—such as the tighter capital market environment post-2023 and stricter ASIC disclosure requirements.

• Qualitative Factors: The unique characteristics of the business—industry, revenue predictability, governance, and buyer pool—play a bigger role in 2025. For example, a tech startup with a niche market may warrant a higher DLOM than a mature manufacturer with stable cash flow.

• Option Pricing Models: Modern valuers increasingly use financial models like the Black-Scholes or Finnerty Model to quantify the cost of illiquidity, especially for larger transactions.

Typical DLOM rates in Australia currently range from 15% to 35%, but can be higher for businesses in distressed sectors or with limited financial transparency.

Real-World Examples: DLOM in Action

Consider a Sydney-based family-owned logistics business valued at $10 million before DLOM. Because the shares are not easily tradable and potential buyers are limited, the valuer applies a 25% DLOM, reducing the value to $7.5 million. This adjustment can have major tax, succession planning, and investment implications.

In 2025, the Australian Taxation Office (ATO) is scrutinising DLOM assumptions more closely in SMSF and estate planning contexts. For example, a business owner transferring shares to family members via a trust must justify the DLOM used to avoid disputes or compliance risks. Recent case law and ATO guidance highlight the need for detailed, evidence-based rationale—gone are the days of simply applying a ‘rule-of-thumb’ percentage.

• Succession Planning: Applying an appropriate DLOM can help lower the taxable value of business interests, potentially reducing capital gains or stamp duty liabilities.

• Litigation: In shareholder disputes, the choice of DLOM can swing millions in value. Courts are demanding more transparency and empirical support for DLOM figures.

• Investment Decisions: Private equity and venture capital investors routinely negotiate DLOM when pricing deals, especially with the increased focus on liquidity risk in 2025’s uncertain economic climate.

The 2025 Outlook: Evolving Standards and Best Practices

As Australia’s regulatory environment tightens and data analytics become more accessible, expectations around DLOM documentation and justification are rising. Valuers now need to:

• Substantiate DLOM with hard data—market studies, transaction comparables, or option pricing models.

• Tailor DLOM to the business’s specific circumstances, not just industry averages.

• Explain the impact of recent policy changes, such as the 2024 ASIC reforms around private share transfers and enhanced disclosure requirements for unlisted entities.

For business owners, this means more accurate, defendable valuations—but also the need for deeper engagement with qualified valuation professionals.

Conclusion: DLOM Is More Than Just a Number

Discounts for Lack of Marketability are a critical, complex lever in the valuation of Australian private businesses. As 2025 unfolds, expect DLOM to remain in the spotlight amid changing market and regulatory dynamics. Whether you’re planning succession, negotiating a sale, or prepping for litigation, understanding how DLOM works—and ensuring your valuer gets it right—can make a substantial difference to your bottom line.