The New Giants of Brazilian Higher Education


It’s been a busy time for the education sector in the Brazilian stock market. In less than a week, two large groups of private universities have filed for initial public offerings, which together could raise as much as R$1.6 billion (US$730 million). But there’s more action than IPOs. This year, three mergers and acquisitions of major education companies also shook up the sector, which is making big bets on online distance learning.

The biggest of the two IPOs is led by Ser Educacional Group, which operates universities in 11 states in the north and northeastern part of the country and has over 100,000 students. The company set the price range at between R$19.50 and R$23.50 a share and aims to raise between R$600.2 million to R$976.5 million (US $275M to $447M).

The other company, Anima Educação, runs postsecondary institutions in São Paulo and Minas Gerais that serve 48,000 students. It expects the to offer shares at R$16.50 to R$22 apiece and raise between R$348M and R$626.4M (US $160M to $287M). Anima says that this money will allow them to carry out an aggressive acquisitions strategy. Today, it is already considering buying 42 institutions in 20 Brazilian states and a company that offers online distance learning programs.

According to Ryon Braga, founder of the consultancy Hoper Educação and an analyst on the higher education market, both IPOs take place at an opportune time. There are high expectations for the postsecondary education industry in Brazil after shares of two other educational groups, Kroton and Estacio, were the two most profitable companies on the Brazlian stock market (Bovespa)  in 2012, each posting returns greater than 100%, according to Economática. In addition, total earnings of companies in the high ed sector increased from R$28.4 billion in 2011 to R$36.23 billion this year, according to a study from Hoper Educação.

Braga also adds that the education market is booming because private universities are now benefiting from Fies, a federal financing program for low-income students, many of whom can now afford to attend university for the first time.

Pedro Galdi, chief analyst for SLX brokerage, is less optimistic. He contends that the Brazilian market is not doing so well, echoing concerns raised by other analysts in a recent Economist piece. "The education sector is experiencing a period of consolidation, it's clear. But Bovespa is not in a good moment. Better doing the IPO now than never," he adds.

Mergers and takeovers

Besides the two IPOs, three other major deals shook up the Brazilian private higher education industry this year. In September, Estacio, which serves more than 200,000 students, bought Uniseb, from São Paulo, for more than R$615M. Of Uniseb's approximately 38,000 students, 33,000 are enrolled in a distance learning program.

In August, Baltimore, MD-based Laureate Education, which owns 11 postsecondary institutions in Brazil (and over 70 worldwide), bought Brazilian education group, the Educational Complex FMU, for R$1 billion. Today, FMU has 68,000 students and expects to triple this number in three years. Online distance learning is expected to make up 60% of this growth, FMU officials said during the announcement of the sale.

In April, a major merger between two of the largest educational groups in the country, Kroton Educational and Anhanguera, formed what is considered to be the largest education conglomerate in the world. It was an all-stock deal with shares valued at R$5 billion. The combined company is now worth about R$12 billion and serves nearly 1 million students.

Braga believes these deals are reshaping the Brazilian higher-ed industry. "Distance learning, which is growing five times more than the traditional learning, is the basis of growth for all these groups," he says. “This happens because technological development is allowing the dissemination of knowledge via the Internet and attracting significant interest in a new form of learning.” Further fueling this change, he adds, are decisions by the Ministry of Education to relax regulations on schools offering online courses.

High rewards, high risks

For some, the IPOs and mergers and acquisitions raise just as many concerns as they do money. Marcelo Knobel, a physics professor at Unicamp, a public university, is worried about the quality of education delivered by private institutions. Universities require well-equipped laboratories, well-paid teachers and other substantial infrastructure investments, he notes. "Either the universities pass this cost to the student or the institution puts quality at risk," he says.

And with companies changing hands so frequently, Knobel worries that schools may lose their diversity of values, missions, and methods--characteristics he feels are vital in creating and sharing knowledge. He also worries that when one group is responsible for teaching hundreds of thousands of students, one mistake can mean a disaster of epic proportions. "If one of these groups makes a wrong choice and ends up failing, thousands of lives will be impacted. There must be mechanisms to protect these students," he warns.

Growing out of the plan

The Brazilian system of higher education only allowed for-profit companies in 1996, after the enactment of Law of Guidelines and Bases. Up until that time, higher education could only be provided by public or nonprofit institutions such as religious universities.

Since then, private providers have been a popular option. Of the estimated seven million Brazilian students currently enrolled in postsecondary institutions, 73% are at private schools. And they are increasingly pursuing distance learning, according to The Census of Higher Education, a survey prepared by the Ministry of Education. Between 2002 and 2011, enrollment in distance learning in private higher education increased from 6,390 to 815,000 students. From 2011 to 2012, the growth for online learning enrollment was 12.2%, far outpacing the 3.1% growth for in-class learning.

Despite this growth, enrollment in online distance learning courses represents only 15% of total students, a percentage that the Brazilian government considers low. "When you look at the OECD [Organization for Economic Cooperation and Development] countries, almost half of the enrollments are in distance learning. We have room to grow," said the Brazil’s Minister of Education, Aloisio Mercadante, during his announcement in September of the most recent census of higher education.

This room to grow, Braga says, will continue to drive partnerships between small local institutions and the rapidly growing online sector. Local institutions, for instance, can offer traditional facilities including laboratories, which the Ministry requires for courses. And the online providers will bring the money, instrastructure and resources to support online learning. "It is a radical change that will redesign the relations between players in the sector," says Braga.

"It is a radical change that will redesign the relations between players in the sector," says Braga.

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