What is the horizontal model used for in minority interest valuation?

The horizontal model in minority interest valuation primarily focuses on providing a comparison with other minority interest transactions. This model analyzes the prices obtained in prior transactions involving similar interests, allowing for a more accurate assessment of the value of the minority interest in question. By comparing transactions with similar characteristics—such as industry, size, and economic conditions—it becomes possible to gauge market perceptions and valuation multiples specifically applied to minority interests.

This approach is particularly useful because it takes into account the unique aspects of minority interests, including the lack of control typically associated with them. It provides a context for understanding how other investors have valued minority positions, which helps in arriving at a fair value estimate based on actual market behavior rather than theoretical constructs.

Other options, while relevant in broader valuation contexts, do not apply specifically to the function of the horizontal model regarding minority interest valuation. For instance, assessing control premiums is more aligned with valuations of controlling interests rather than minority stakes. Evaluating overall market trends might give insight into general valuation movements but does not provide the granular comparison necessary for minority interest analysis. Similarly, while comparison with public company valuations can inform broader market sentiments, it doesn’t focus on the specific transaction dynamics that the horizontal model emphasizes.