Strategy

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Our Strategy

Our goal is to maintain our leadership position in the Higher Education market for the North and Northeast regions, in addition to becoming even more relevant in other regions of Brazil. To achieve this, we developed a growth strategy based on three main pillars: (i) organic growth in the on-campus segment by launching new undergraduate programs in existing units, in addition to receiving accreditation for new units; (ii) organic growth in the distance learning segment, which is still underexplored and combines high growth potential with higher margins; and (iii) growth through select acquisitions that complement our operating platform in two fronts: (a) acquisition of institutions with consolidated regional recognition; and (b) new accreditations through the acquisition of existing institutions or white labels (onerous assignment of accreditation to operate courses maintained by a given institution, without the need to acquire assets or the company) that have satisfactory quality concepts from the Ministry of Education (MEC), enabling the Group to grow faster in certain locations.

Organic growth in the Northeast, North and Southeast regions

a) Investment and creation of new undergraduate courses and increase in the number of student positions in existing units

Our activities have expanded strongly over the last five years, mainly focused on organic growth. In 2009, we received approval from the Ministry of Education to offer 21,300 new student positions per year compared to the 947,200 student positions as of December 31, 2018, corresponding to an annual average growth rate of 52.4%. We will seek to expand our smaller units in order to increase the number of available positions and enable organic growth with low investments and reduced risk. In addition, the University Centers we operate have greater autonomy to create new courses and increase the number of positions, potentially enabling the acceleration of our organic growth. We will continue to create new courses at our units that offer growth opportunities, focusing on the courses that are most profitable and have highest demand, such as in the health (Medicine, Dentistry, Psychology, among others) and engineering fields, which have higher average monthly tickets and lower dropout rates.

b) Accreditation of new units

The Ministry of Education’s accreditation process for new on-campus units takes an average of 36 months. Based on Ser Educacional’s market intelligence, as well as Management’s experience in opening new campuses, we identified opportunities for inaugurating new units in locations where demand has not yet been met by the existing local educational institutions. These new units will be strategically located to maintain the current levels of attractiveness of our courses in other cities.

c) Expansion of Distance Learning (EAD)

The New Regulatory Framework for the distance learning segment, established by the Ministry of Education Ordinance dated June 11, 2017, introduced the required standards for the accreditation and offering of distance learning courses, in compliance with Presidential Decree 9,057 dated May 25, 2017. The New EAD Regulatory Framework ensures, among other items, the autonomy for educational institutions accredited by the MEC to expand their distance learning centers, so long as they follow certain educational quality standards. We believe we can strongly benefit from this regulatory change that limits supply within the distance learning market. In this sense, we believe that strong regional brands will prevail over brands without relevant local presence when potential students choose which institution to attend. We also believe that the recognized UNINASSAU, Maurício de Nassau, UNAMA and UNIVERITAS brands will enable the sustainable growth of our distance learning programs. The distance learning market tends to generate higher returns as the marginal cost of new students is low and operating expenses will be largely absorbed by our existing administrative structure. The segment has been growing strongly in Brazil thanks to affordable prices and the convenience it offers, thereby attracting students with lower purchasing power living in cities that are distant from large urban centers. We began our operations in the distance learning market during the first quarter of 2014. In November 2015, Universidade de Guarulhos (UNG) received its accreditation by the MEC to offer distance learning in Brazil. After the accreditation, UNG initially offered 18 distance learning courses through six learning centers in the cities of Guarulhos, Atibaia, Bragança Paulista and Itaquaquecetuba, significantly increasing the university’s competitive skills. On December 31, 2018, we had 205 distance learning centers.

d) Strengthening of our marketing campaigns aimed at maintaining the high recognition level of our brands and attract more students

We believe that brands with strong regional appeal and community identity will prevail in the higher education market. Thus, we will continue our communication efforts with our surrounding communities, aiming to maintain or expand our brand recognition. We use an integrated communications strategy that combines media insertions, social and environmental initiatives, support for sporting activities and advertising campaigns to recruit students, aiming to not only to increase student intake in each period but to also generate brand recognition and make our Group an integral part of the communities in which it operates. These initiatives are carried out jointly with our sales force, who works in coordination with our sales efforts at our units, directly contacting our target audiences. We also use other specific sales initiatives, such as partnerships with companies for internship and trainee programs, as well as with public agencies and schools, college fairs and other important events in order to recruit potential students. Since 2016, we have been making significant investments in marketing initiatives that are focused on the dissemination and recognition of the new UNIVERITAS brand. Aiming to increase the Group’s presence nationwide, we launched UNIVERITAS in 2016 to focused in the Southeast, Midwest and South regions of Brazil. As a result, we now operate in all regions of the country, reinforcing the strategy of having a recognized local brand with great appeal for students, professors, employers and society.

Acquisitions and sector consolidation

We intend to accelerate our growth through strategic and select acquisitions that complement our operating platform and our brand portfolio. Our inorganic growth strategy is divided into two fronts: acquisition of institutions with consolidated regional brand recognition, aiming to expand our portfolios and achieve synergies with our existing distance learning platform; and the acquisition of accredited institutions with low brand recognition (known as white label), which have satisfactory concepts with the MEC and will enable the Group to grow faster in certain cities, reducing the operation’s maturation period and risk compared with the necessary period needed for new accreditation by the MEC and the elevated risk of launching a new unit in a new market.

The acquisition of institutions with regional recognition is intended to expand our brand portfolio and allow us to enter markets where we do not operate. With this strategy, we seek to acquire sizable institutions with regionally established brands more focused on health courses and who preferably operate university centers.

The acquisition of accreditations, or white labels, allows accelerated growth by using our already recognized brands. This strategy is similar to the organic opening of units, however, requires substantially less time than the usual MEC accreditation process. This strategy is used to enter markets in which our brands are highly recognized, but we still do not have any units or accreditations in progress.

We adopt strict criteria when acquiring new units, which include the suitability of the location and its facilities, student convenience and the local competitive environment, all of which are verified through an extensive market analysis which includes variables, such as the size of the target market, competitive dynamics, higher education penetration rate, number of high school graduates, purchasing power of potential students and income stratification. Given the structure of the higher eudation market in the Northeast and North regions, where most of the possible small and medium-sized acquisition targets are located, including colleges, university centers and universities, we conduct market surveys before implementing new programs so that we meet the market needs of the acquired units.

Constant pursuit of increased efficiency and profitability

We make ongoing investments towards the innovation of our academic model and will continue to develop and offer high-quality university and vocational programs that are continuously updated in order to meet the needs and profiles of our students and the market, administered by highly qualified professors and backed by up-to-date teaching methodologies and tools and appropriate and conveniently located campuses. We are aware that our students not only value receiving a first-class education that prepares them for the job market, but they also value the Company’s high level of services. Therefore, we will continue to invest heavily in infrastructure, especially digital infrastructure, seeking to improve our students’ experience. We also plan to improve our operating efficiency by: (i) intelligently managing our course portfolio, focusing on programs with high demand and profitability; (ii) creating classes with a minimum number of students; and (iii) interconnecting our curriculum framework. We regularly reassess our course portfolio based on market research, the economic development of each region where we operate, and the products offered by our competitors. The Company’s centralized academic team is always alert to the development of new programs, in addition to further developing those it already offers, if market demand exists.t

Ongoing investments in technology

We intend to continue investing in technology in order to constantly improve the quality of our teaching and our relationship with students and faculty. By doing so, we believe we will increase our operating efficiency, reduce costs, improve student and employee convenience. Investments in new technology will ensure increasingly more flexible product offerings, allowing higher gains in teaching quality and further reducing campus costs. Finally, we will also invest heavily to support our expected growth, ensuring an appropriate technological infrastructure for our students, faculty and administrative staff.