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In 2015, the Brazilian for-profit private sector in Higher Education registered a net income of R$ 49.3 billion (around US$ 14 billion). About 36% of this number comes from the 12 biggest educational groups. The relative size of these companies based on their share of total higher education enrolments are: Kroton (16.4%), Estácio (7.0%), Unip (6.0%), Laureate (4.3%), Uninove (2.4%), Ser Educacional (1.8%), Cruzeiro do Sul (1.3%), Anima (1.2%), Unicesumar (0.9%), Ilumno (0.8%), DeVry (0.7%), and Grupo Tiradentes (0.7%).

Several of these giant for-profit companies are moving towards mergers and consolidation as government cutbacks threaten a key source of financing for their students, which has depressed their stock value. Recently, two of these companies made competing offers to merge with Estácio Participações SA. The country´s biggest education operator, Kroton Eucacional SA, announced its interest in acquiring Estácio for about R$ 3.5 billion (around US$ 1 billion) in stock. Two days later, Ser Educacional SA sent a competing non-binding proposal that would result in the largest education group offering traditional classroom-based, private higher education in Brazil.

Kroton, currently enrolls around 1 million students, compared to Estácio’s 590 thousand students and Ser Educacional’s 150 thousand students. Kroton has operations operating in the South, Southeast, and Center-West of the country, while Estácio has campuses in states throughout the northeast, the far north, and has a particularly strong presence in the Southeast. Ser is currently the largest player in the Northeast region.

After Estácio announced that it had created a committee to evaluate the offers, both companies raised their proposals. Finally, on July 9th, 2016, the administration board of Estácio announced that they decided for the offer made by Kroton, and the shareholders´ meeting should occur soon to approve the merger.

Meanwhile, the possibility of additional mergers has attracted the attention of the House of Representatives in Brasilia, that had already planned a public hearing to discuss the issue. The new education giants would unbalance the higher education sector, creating not only a company significantly larger than any of the competitors, but also would concentrate the majority of government student loans in the private sector. Furthermore, the merger must be approved by the Economic Defense Administrative Council, (CADE), the Brazilian regulatory agency that evaluated the merger between Anhanguera and Kroton in 2013. CADE approved the merger with some pre-conditions, including the stipulation that Kroton sell off it’s interests in Uniasselvi, its on-line operations that had been purchased for R$ 510 million by Kroton in 2012. In Februrary 2015 Kroton sold Uniasselvi for R$ 1.1 billion to Carlyle and Vinci Partners, that assumed control of that on-line education endeavor as of March 1st, 2016. In fact, if approved, the new company Kroton/Estácio would have 5 out of each 10 students of the 10 bigger companies of the private sector.

Brazil is undergoing a period of deep economic crisis and one of the consequences has been a strong reduction in the availability of students loans provided by the Student Financing Fund (Fundo de Financiamento Estudantil or FIES) program that is subsidized by the federal government. Several for-profit players, including Estácio, experienced a significant financial hit as a result this reduction in student financing, leading to a willingness on the part of management to merge with a competitor and opening an attractive opportunity to the other for-profit companies. The mergers are reshaping the private higher education sector in Brazil

The mergers and growing influence of the for-profit education sector fuels the ongoing concern over the quality provided by these giants. For-profit logic often privileges operational and management issues to the detriment of quality. Indeed, it is extremely difficult to keep growing at such a pace and maintain an acceptable level of quality—worse still as incentives to demonstrate quality have diminished given the current scenario of reduced competition. It is worth emphasizing that most of the students in this sector are enrolled in low-cost careers, where the profit objective would favor larger classrooms, high turnover of underpaid faculty, and reduced academic expectations and standards to avoid drop-outs (and the subsequent loss of revenue). This trend is clearly unsustainable in the medium and long terms, not for the companies themselves, but for the higher education sector, and consequently, to the country as a whole.

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