Why Bertelsmann is investing 161 million in an education company in Brazil

Dusseldorf Bertelsmann is acquiring a majority stake in Brazilian education service provider Afya for US$161 million (nearly €153 million). The Media, Services and Education Group announced this on Thursday.

The family business is also considering acquiring more shares, according to company insiders. It was only in the summer of 2021 that the Gütersloh-based company invested 500 million euros in Afya, which is listed on Nasdaq, the New York technology exchange.

The company is considered the leading provider of medical education and training in Brazil. Medical students can be trained at 13 private universities. And practicing doctors from more than 1,000 partner clinics use Afya to continue their training digitally or to manage their work through the company’s software.

The turnover was the equivalent of 270 million euros. Earnings before interest, taxes, depreciation and amortization (Ebitda) was 120 million euros. With a margin of more than 40%, the company is very profitable.

With this investment, the New York subsidiary Bertelsmann Education Group now holds 57% of Afya’s voting rights. Until now, it was 46%. Taken together, the investments are among the largest in Bertelsmann’s corporate history to date. Kay Krafft, who heads the Education group, will be the new chairman of Afya’s supervisory board. “We still see huge growth potential in Afya,” Krafft told Handelsblatt.

The acquisition is in line with Bertelsmann’s strategy and future program called “Boost 2025”. At the end of March, when presenting the annual figures, CEO Thomas Rabe confirmed that he wanted to invest more in the high-margin and high-growth digital health sector.

>> Learn more: Bertelsmann plans business with digital health

The Gütersloh-based group had already participated in the development of Afya in 2014 and had members on the supervisory board who helped the founding family in the development. The company went public in July 2019. Since then, the share price has fallen 40% to just under US$14. Revenues, on the other hand, have more than doubled and the number of students has tripled to 16,000. On average, 250,000 people use digital training each month, compared to 10,000 in 2019.

Growing market in Brazil

Bertelsmann joined Afya because CEO Raabe had identified Brazil as a growth region alongside China and India. With a population of 213 million, Brazil is a huge market with uniform national regulations on health issues, which facilitates the development of training and development offers, as well as the uniform official language, Portuguese .

“Employees and students there are more willing than in Europe to pay to continue their education and training at a private university,” says Krafft. It costs: At Afya, students have to pay the equivalent of around 1,700 euros in tuition fees per month.

Kay Kraft

“We also see enormous growth potential in Afya,” says the director of Bertelsmann.

But: In Brazil, there are only 2.5 doctors per 1000 inhabitants; in Germany it is 4.3. “The country has a lot of catching up to do,” says Krafft. The number of employees in Brazil’s healthcare system is expected to grow at an above-average rate, promising quick payoffs for Afya and Bertelsmann.

Afya has taken over several universities in recent years. Nearly 40% of all prospective, trained physicians in Brazil now study at the educational company’s facilities or use the company’s software offerings.

According to the company, there are eight candidates for a place at the university. Afya offers the same teaching program at all sites. This not only guarantees a standard, but can also be scaled up quickly. The digital continuing education offers can also be extended to other clinics without great financial effort.

Proceed with service software

Afya is making more and more money with service software related to its core business. For example, the company offers programs that doctors can use to manage appointments or make bills. A digital reference book is also part of the portfolio. Future doctors come into contact with these programs even during their studies.

Founder Nicolau Esteves, who still owns around 20% of the shares with his family, says: Bertelsmann can create new content-related momentum by focusing on digital healthcare education. Co-CEO Krafft plans to bring more universities into Afya’s curriculum and wants to expand the software offering. In addition, the service provider intends to promote cooperation with pharmaceutical laboratories so that they can better present their products to clinics, for example.

Initially, Krafft wishes to develop in Brazil and the United States. An expansion towards Europe could only take place in a few years. In the 27 EU countries, requirements and regulations are more fragmented and employees spend less money on continuing education.

Krafft has headed the Bertelsmann Education Group since its inception in 2015. Previously, he was a member of the board of music company BMG, which is also owned by Bertelsmann. He was jointly responsible for BMG’s growth from a start-up to the world’s number four in the industry.

The 51-year-old now lives in the United States with his family and is also the head of Relias, an online training provider for healthcare workers in the United States. Relias follows a similar concept to Afya and is also owned by Bertelsmann. Relias customers include more than 11,000 healthcare facilities and 4.5 million workers. Relias is also growing rapidly and is very profitable.

CEO Rabe describes the recent investment in Afya as a “further strengthening of the Bertelsmann Education Group”. In the medium term, this should now generate an annual turnover of more than one billion euros and an Ebitda of 500 million. In total, Bertelsmann achieved an annual turnover of 18.7 billion euros and a profit of 2.3 billion euros in the past financial year.

After: Bertelsmann invests 100 million euros in the Applike application platform.

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