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Private Equity’s New Focus: Education

Investors are now looking at Latin America’s education sector.


Latin America, having emerged from the recent global financial crisis in better shape than most of the rest of the world, is currently growing in many areas – commodities, energy, and infrastructure, for instance – and increasingly in new sectors, like education. Private equity funding is playing a crucial role in promoting this growth, and professionalizing entire economic sectors, through mergers and acquisitions of companies both small and large.

This reality is made clear in a recent report by the Latin American Private Equity & Venture Capital Association (LAVCA), which found that in 2011, a record $10.3 billion was raised for private equity and venture capital investment in Latin America. This amount represents a 27 percent increase from 2010 - also a record year.

Commenting on the report, Joe Leah from the Financial Times argues that “investors are attracted by the region’s growing middle classes, its emerging energy industry in cities such as Rio de Janeiro and its huge infrastructure needs.” And not only that, but recently the education sector has started to be part of the surge in private equity as well.

Numerous examples illustrate these changing circumstances. Last month, sources reported that the Baltimore-based global education provider Laureate Education, backed by several private equity titans such as KKR and Citigroup Private Equity, is preparing to launch a multi-billion dollar Initial Public Offering (IPO). Laureate generates half its revenue from Brazil, Mexico, and Chile, and the upcoming IPO is a clear indicator that education is a sector primed for increasing investment growth.

Growth in private equity funding of the education market is not unique to the United States. The record levels of investment in Latin America include significant investments in education.  In January of this year, Actis, a global private equity fund with a focus on emerging markets, announced an investment of $102 million to acquire a significant minority stake in Brazil´s prestigious University Cruzeiro do Sul Educacional. Apollo Group, the parent company of University of Phoenix, purchased Universidad de Artes, Ciencias y Comunicacion in Chile in 2008 and Universidad Latinoamericana in Mexico in 2007.

There are, in fact, numerous other actors expanding to this market. Whitney University System operates in 18 Latin American countries, helping universities in the region to expand access and quality in affordable ways by providing both capital and technical assistance. It serves over 80,000 students in the region through online and distance learning campuses

DeVry Inc., a $3 billion for-profit higher education organization with over 90 campuses in North America, has begun looking to Latin America as well. In 2009 the company purchased 82.3 percent of Fanor, a for-profit university based in northeastern Brazil, for $40.4 million.

In 2009, Linzor Capital, which operates out of Chile, Argentina, Mexico, and Colombia, spearheaded the company’s foray into the region’s education market by closing a deal that makes Linzor a co-owner of 57 percent of Saint Thomas de Aquino University, the oldest private institute of higher education in Chile.

In 2010, DLJ South American Partners, acquired a 25 percent interest in Grupo Santillana de Ediciones, worth $370 million. Santillana is the leading educational textbook publisher Latin America and Spain and operates in 22 countries, and routinely sells well over 100 million books a year.

Multilateral institutions are part of this market as well. The International Finance Corporation (IFC), the arm of the World Bank that lends to the private sector, is increasingly involved in education. In recent years the IFC has invested $200 million in Brazil, Chile, Colombia, Mexico, and Peru, in online and distance learning centers and other large institutions of higher learning, many of them designed to serve low- and middle-income students.

Not everyone believes that private investment is beneficial, however. Last year’s student-led protests in Chile included complaints about education funding levels, inequality of access to education and private sector involvement in education.  But despite the protests, and the obvious need for solid regulations and enforcement, the private sector’s participation in education has and will continue to grow, with good reason.

Private equity funding has so far focused on higher education, but – as was the case in the United States  – the elementary and secondary education market will soon become more appealing, because of its larger size, the unmet need for better quality, and the greater opportunity for incorporating new technology-based products and services.

This expansion can’t come fast enough. For education, a sector that currently has only one major provider – the government – the private sector, well regulated and supervised, will bring a much needed dynamism and entrepreneurial spirit, giving greater options to parents and children and offering them a higher quality education.

Gabriel Sanchez Zinny is managing partner at Blue Star Strategies. He wrote this column for Latin Business Chronicle.


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