The illiquidity discount adjusts a value derived from listed comparables to reflect the risk arising from the lower liquidity of an unlisted holding. The acronym DLOM (Discount for Lack of Marketability) reflects market usage, not the terminology of the IPEV Guidelines. The IPEV 2025 Guidelines rule out a discount for marketability, defined as the time needed to complete a transaction, but require a lack of liquidity to be considered when adjusting multiples, with calibration to the entry price as the tool to assess it. Where it is applied and at what rate are matters of the Valuer's judgement, framed by the valuation policy, and must be documented. Jolv adopts one convention: by default on the multiple, with an option to apply it to the fair value of the holding at the end of the equity bridge — never to net debt, never to 100% equity before the fund's share.
Calculation convention
On the multiple: EV = metric × multiple × (1 − d) · On the holding: FV = FV before discount × (1 − d)
At the same rate, the two placements do not produce the same value: applied to the multiple, the discount bears on enterprise value and flows through to equity with the effect of leverage.
Worked example (fictional)
EBITDA €10m, comparables multiple 8.00×, net debt €30m, fund's share 60.0%, discount of 15.0%.
| No discount | EV €80.0m → equity €50.0m → fund's share €30.0m |
|---|---|
| Discount on the multiple | 6.80× → EV €68.0m → equity €38.0m → fund's share €22.8m |
| Discount on the holding | €30.0m × 0.85 = €25.5m |
Same 15.0% rate, a €2.7m difference: −24.0% on the fair value of the holding with the discount on the multiple, −15.0% with the discount on the holding. What must be set in the policy and held constant from one campaign to the next is, first and foremost, the point of application.
Review points
- Discount applied to net debt.
- Discount applied to 100% equity and then to the fund's share: illiquidity is counted twice.
- Point of application changed from one campaign to the next without a record or justification.
- Discount applied to a multiple already calibrated to the entry price: the calibration gap already reflects illiquidity, which is then counted twice.
In Jolv
Jolv applies the discount to the multiple by default, offers the option of applying it to the fair value of the holding at the end of the equity bridge, and versions that choice in the audit trail.
Feature — Fair Value & Multiples
Further reading — DLOM: where to apply the illiquidity discount in the bridge