A Latin American education giant is setting its sights on Wall Street.
Cogna — Brazil’s largest for-profit education company — has spun off a K-12 ed-tech firm called Vasta Platform and filed to raise more than $300 million with the subsidiary in an initial public offering, according to a regulatory filing.
Vasta Platform provides digital content and administrative technologies, with a customer base in Brazil that currently includes more than 4,100 private schools and about 1.5 million student accounts. The company sees potential to grow in Brazil’s massive school market — described as the world’s fifth-largest — and potentially take its products to other markets, too.
The company offers a full range of ed-tech tools to private schools, from digital content and test prep to teacher training and STEAM-based offerings.
Also part of the Vasta portfolio is what it refers to as its “digital platform,” a set of tools to “unify our partner school’s entire administrative ecosystem,” including solutions such as accounting, digital marketing and helping private schools identify and convert new student leads.
In its filing with the U.S Securities and Exchange Commission, and in an online presentation of the company roadshow, executives make the case that there’s plenty of room to grow in the burgeoning Brazilian education market, the fifth-largest in the world with about 48.5 million students enrolled in private and public K-12 schools.
“We have the most powerful education platform in Brazil that allows us to reach any kind of school in any part of the country,” Vasta CEO Mario Ghio said in the company’s online presentation.
The IPO filing presents a rare example of an ed-tech vendor going public — in this case a foreign firm tapping a U.S. stock exchange.
Most companies in the ed-tech space lack the scale of business to merit being traded publicly. Plus, it’s more “challenging conceptually” for an education firm to go public than it is for say a pharmaceutical or healthcare company, said Adam Newman, a founding partner of Tyton Partners, because of there being a perceived stigma associated with education companies reaping profits.
However, in those cases when a foreign education company registers for an IPO, “if they can get to one of the U.S. markets, that’s generally preferred,” Newman said, because it can attract a different batch of investors, carries loftier prestige, and brings more name brand visibility.
A closer look at some of the IPO details:
- Vasta Platform is hoping to raise in the neighborhood of $306 million by offering 18.6 million shares at a price range of $15.50 to $17.50. If the IPO is successful, that would give the company a projected diluted market cap of about $1.4 billion, according to Renaissance Capital.
- It plans to list on the Nasdaq under the ticker VSTA
- Part of the money raised from the IPO will be used to pay for separating from its parent firm, Cogna. In Vasta’s IPO registration, the company said it will “use approximately one half of the net proceeds from this offering to repay part of the debt owed to our parent company.”
- Another slice of the IPO proceeds will fund expansion through future acquisitions or investments in complementary businesses, products and technologies. Vasta’s parent company is known for its aggressive acquisition strategy, having acquired 17 companies since 2010. In fact, Vasta, itself, is the result of a Cogna acquisition in 2018.
- In the online presentation, Ghio, the CEO, said there is “massive room for consolidation” in the company’s key focus areas and that a “robust pipeline for acquisitions” has already been mapped out.
An Eye on Expansion
There are roughly 40,000 private schools in Brazil. With a student enrollment just under 9 million total, Brazil is the fourth-largest private school market in the world, behind India, China and Indonesia, according to Vasta’s filing with the SEC.
Vasta says the potential to increase its footprint in Brazilian private schools is “strong” compared to companies operating in the other top private school markets. That’s because Brazil’s private school enrollment is much less saturated, comprising less than 20 percent of overall enrollment — 41 percent and 35 percent in Indonesia and India, respectively. (See EdWeek Market Brief’s recent story breaking down the opportunities and challenges for education companies in trying to make it in the Brazilian market.)
Meanwhile, private school enrollment has steadily increased over the past decade and remains stable despite the Brazilian economic crisis, the company said in its filing. That’s due to a rising middle class and a huge gap in the quality of education delivered by Brazil’s public and private schools.
“Therefore, with the resumption of economic growth, this segment is expected to have room for growth in coming years and well-positioned players will have the opportunity to capture these gains,” the company wrote.
And Vasta apparently has ambitions to one day expand outside of Brazil.
In its SEC filing, Vasta declared that international expansion is part of its overall growth strategy: “We believe schools, students, educators and families in Latin America are facing the same problems as in Brazil and demand the same solutions we are currently offering.” Despite the language challenges posed by delivering products in two different languages, Spanish and Portuguese, “the stakeholders’ needs are the same and we are able to fulfill many of those since we are already producing educational content in Spanish.”
An Entry Point for Investors?
Newman, the founding partner of Tyton Partners, said Cogna’s move to spin off Vasta from the rest of the business makes sense and will help investors get a better picture for what they’re putting their money behind.
“That should buoy the stock price,” he said. “Shareholders applaud that type of initiative to clarify the different parts of the business by spinning it out.”
Newman said Vasta appears poised to make a splash with its IPO, and that it presents an opportunity to invest in a company that offers a full suite of digital education solutions with a strong network of local partner schools in a developing region.
“If you like digital content, curriculum resources and enterprise software … this may be the only way to get that kind of exposure in Brazil,” he said, likening Vasta’s array of tools to the U.S. ed-tech giant PowerSchool, which offers software for everything from finance and HR to student analytics and content. “You could effectively be investing in the PowerSchool-plus of Brazil.”
On the other hand, Donovan Jones, CEO of VentureDeal.com, a website that tracks tech startups and venture capital funding, wrote in an online piece that several factors make the Vasta IPO “riskier than I would prefer.”
Jones said the market opportunity for a full-range tech solution provider like Vasta shows potential for growth in Brazil and that the company’s approach so far has produced positive results. But Vasta, he argued, is vulnerable to the growing effects of the COVID-19 pandemic and continued depreciations of Brazil’s currency against the dollar.
“I’ll watch this IPO from the sideline,” Jones concluded.
Image by Getty.