A business school run through a trust is for sale. Why should a buyer buy it, and at what price?

Buy it for the fee stream, and pay no more than about Rs 120 crore. The college makes Rs 30 crore of EBITDA, but the trust cannot pay its surplus out. What the buyer owns is a fee of 15% of revenue, Rs 15 crore, less Rs 3 crore of costs: Rs 12 crore. At 10x that is Rs 120 crore, not the Rs 300 crore the headline suggests, and less if the agreement is short.

Not the college. A family that manages a temple's accounts for a fee owns the fee, not the donations. Vidyavan's trust collects the fees and keeps the surplus; the company for sale owns only a contract that pays it 15% of revenue. Start every valuation of this kind by drawing the structure and following which cash can leave, because the ring-fencedKept inside one legal entity by law or contract, so it cannot be paid to the owners of another. surplus belongs to nobody a buyer can be.

Apply the 10x to the right line. Rs 12 crore of fee EBITDA at 10x is Rs 120 crore, against Rs 300 crore if you wrongly value the college's whole EBITDA. The fee stream is also lighter than it looks on capital: the Rs 4 crore of maintenance capex sits in the trust and is paid from the surplus the trust keeps, so the operating company's EBITDA is close to its cash flow before tax. After 25% tax it is about Rs 9 crore a year.

Because a well-run college is a durable business. Fees are paid upfront, a 2,000 seat capacity is hard for a rival to replicate quickly, and a fee linked to revenue grows every time fees or seats rise. If fees grow 6% a year, the operating company's EBITDA grows faster, because its Rs 3 crore of costs do not scale with fees. That is the pitch: a recurring, prepaid, growing fee with little capital need.

The contract, above all. A fee is worth 10x only if it will be paid for many years. If the management agreement has five years left and the trust can decline to renew, the buyer is buying a five year annuity, not a perpetual business, and 8x or less is the right range: Rs 96 crore at 8x. The second risk is regulatory: authorities in many places look hard at fees that move surplus out of a charitable trust, so the current rules on such arrangements must be confirmed before signing, not assumed. The third is enrolment: a 10% fall in students cuts the fee by Rs 1.5 crore and the operating EBITDA by 12.5%.

Close with the judgement: a sound business to own on the fee, priced on the fee, with the length of the agreement and its regulatory standing checked before any number goes on the table.