Chain of Schools

I: Your client is a private equity firm that is looking to acquire a chain of schools in South India. Develop a business case for them.

C: [Reiterates the case for any clarifications] Can I get some information about the client? Where are they based out of, and what sectors have they invested in previously? And do they have a particular time frame for this acquisition?

I: The client is a PE firm based out of US and has previously invested in the start-up tech space in the US. They are looking to acquire the chain of schools within the next 2 years.

C: Alright, can you also tell me something about the chain of schools?

I: It is a chain based out of tier-1 and tier-2 cities in South India and accommodates students from kindergarten to class V. They cater to children from higher income class families.

C: Got it. What is the current growth rate of the chain of schools and how does it compare to the market?

I: The growth rate of this chain is in accordance with the industry standards.

C: Okay. So, I would like to analyze the case on two aspects- the market outlook and the company outlook. Within the market outlook I’d like to look at the market size, the target market share, the market shareholders, and finally the risks associated with this investment. In the company outlook, I’d like to look at the financial, operational, sales & marketing, and other administrative aspects of the chain of schools. Is there something in particular that you would like me to start with?

I: We can start with sizing the market for the school.

C: [Guesstimate as shown in the flowchart] The market that we are targeting for the school is about 2 million students from high income families of urban tier-1 and tier-2 cities in India.

I: That sounds about right. Now, the firm has analyzed the chain of schools and understood that the profitability of the chain of schools is higher as compared to the other schools. Can you explain why that might be?

C: Sure. For this I’d like to understand if there has been any spike in the revenue generated or any reduction in costs that the chain of schools is looking at?

I: There has been no additional revenue generated, it’s on par with the competition.

C: Then would it be safe to assume that there has been a reduction in the costs incurred?

I: Yes, go ahead.

C: Here, I would like to look at the various costs involved- fixed, variable, and exceptional. Under the fixed costs header, I would include the land cost, infrastructure and equipment cost, and salaries paid to the employees. In variable cost, I would include the water and electricity costs, and wages paid to workers. I would also consider any legal costs incurred under the exceptional header. Has there been a change in any particular cost that I have mentioned?

I: Let’s discuss about the salaries cost.

C: Okay, the cost incurred in paying the salaries can be broken down into the salaries paid to teachers, staff, and management. These salaries can be further broken down into the number of employees and the average salary paid. Do you think I am missing out on something here?

I: No, this is good. The average salary paid to the teachers is as per the market standards. Additionally, they have also noticed a slight increase in the infrastructure cost. Can you analyze why?

C: It seems to me that the number of teachers employed has reduced while the infrastructure cost has gone up marginally. This could be because the chain of schools is undergoing a major transition to the hybrid/online mode of teaching. This would reduce the number of teachers required, as classes are now recorded and distributed to the students. However, this will also attract some equipment expense for the set-up of the computers and the necessary software.

I: You’re right. We can close the case here.