News | Gütersloh/São Paulo, 05/17/2023

A Partner for Physicians

Boost@Bertelsmann: Afya

Afya is a leading provider of medical education and training in Brazil, as well as of digital solutions for medical professionals. Bertelsmann has increased its stake in Afya several times in recent years.

Anyone visiting the IPEMED Faculty of Medical Sciences building on Alameda Lorena street in the heart of the Brazilian megacity of São Paulo will get a good impression of what contemporary medical education in the digital age can look like in an emerging country like Brazil. The IPEMED School of Medicine is part of the listed Brazilian education provider Afya, in which the Bertelsmann Education Group already holds around 60 percent of the voting rights as of the end of 2022 – with the declared intention of further increasing its stake. The lower two floors of the Afya building in São Paulo will initially house a modern, well-equipped clinic. Here, IPEMED medical students treat patients from 34 surrounding districts in São Paulo free of charge under the supervision of their training physicians. For hands-on teaching, which comprises about 40 percent of each course, the branch can draw on its own clinical facilities as well as partnerships with public and private facilities certified by the state’s Unified Health System. The teaching and training rooms for students are housed in the three floors above. And above those are two floors full of technology and recording studios, where Afya produces videos and podcasts on medical topics.

Afya’s entire business and training model is conceived as holistically as the building in São Paulo. “Afya is about supporting physicians at every stage of their professional careers – from medical school through residency and advanced training, and, since 2020, all the way to supporting physicians in private practice in their day-to-day work through digital products,” says Virgilio Gibbon, CEO of the company. Incidentally, the word Afya comes from the Bantu language Swahili, which is widely spoken in East Africa, and means something like “health and well-being.” Today, Gibbon adds, Afya is the leading private provider of medical education, advanced training and digital solutions for medical professionals in Brazil. And since in Brazil most medical education is provided by the private sector, this makes Afya one of the country’s most important players in the field.

With its 45 sites in 19 Brazilian states, the company currently has a total of more than 3,000 seats for medical students, equivalent to around 10 percent of all private medical student seats in the country. With an average study duration of six years, Afya’s faculties, which are spread throughout Brazil, can accommodate some 23,000 medical students. This line of business accounts for about 90 percent of Afya’s revenues, which were around 410 million euros in 2022. The company generates the remaining 10 percent primarily from digital solutions for doctors, such as tools to support patient diagnosis or practice management – a rapidly growing line of business.

For Bertelsmann, the Afya story began in 2014. At that time, in the Bertelsmann Investments (BI) division, Shobhna Mohn, together with the BI team in Brazil and the local investment partner Crescera, had started to build up a group of universities focused on medical education. For this purpose, Bertelsmann and Crescera jointly founded the education fund “Crescera Educacional II.” At the time, the companies invested in the two education companies NRE Educacional and Medcel, which were eventually merged into Afya in 2019. Along the way, the Esteves family, the founding family of NRE Educational, also became co-partners in Afya. Nicolau C. Esteves is now Co-Chairman of Afya’s Board of Directors, alongside Kay Krafft, CEO of Bertelsmann Education Group. The shareholders listed Afya on the Nasdaq stock exchange in the same year the company was founded.

“Afya is a prime example of Bertelsmann Investments’ work,” says Shobhna Mohn, Chief Strategy Officer of Bertelsmann Investments. “Basically, we pursue three goals at BI: first, expanding our network and expertise. Second, positioning Bertelsmann as a long-term investor that provides strategic support for business development. And of course, thirdly, achieving a good financial return on the capital invested. In addition, we are trying to identify a few strategically relevant holdings, such as Afya, in order to maintain or expand our share in these companies.”

“Afya is an excellent fit”

In 2021, Bertelsmann took the next step; the Group acquired 46 percent of the voting rights in Afya for 500 million euros. This was the share in the company that had previously belonged to the “Crescera Educacional II” joint fund. Bertelsmann then increased its stake further in May 2022, enabling Afya to be fully consolidated for the first time in 2022, which resulted in the Afya stake moving from Bertelsmann Investments to the Bertelsmann Education Group. Further ongoing share purchases on the market increased the stake to around 60 percent of voting rights at the end of last year. “Afya is an excellent fit with the Education Group’s strategy,” comments Kay Krafft. “Our focus is on medical education and training and digital solutions to improve healthcare workflows and risk management. The Education Group’s goal is to be a partner for healthcare workers throughout their careers – and Afya just fits in very well.” Afya is also an excellent match for the group’s business model, thanks to strong growth and significant economies of scale, Afya is a highly profitable company with a high EBITDA margin, says Krafft.

“The decisive yardstick for the economic value of a medical school in Brazil is the number of study places,” explains Benedikt Dalkmann, CFO of Bertelsmann Education Group, who is on Afya’s Board of Directors for Bertelsmann, along with Kay Krafft and Tina Krebs, Chief Human Resources Officer of the Education Group, and Shobhna Mohn. “New study places have to be approved by the Brazilian Ministry of Education in a lengthy process, and the state applies strict quality standards to ensure uniform quality of education throughout the country,” Dalkmann added. Afya has consistently taken a “buy and build” approach to further growth and market consolidation in recent years – regularly acquiring mid-sized and established universities. Just since going public in 2019, Afya has acquired a total of 20 private universities in different states of Brazil. Most recently, Afya acquired two medical universities in northeastern Brazil in what was its largest acquisition to date, adding 340 medical school seats in one fell swoop. “The goal is to have our own campuses and faculties in all states of Brazil,” says Virgilio Gibbons.

It is precisely this presence in many parts of the country that makes Afya unique in the Brazilian educational landscape and that gives the company great advantages in many respects. Of key importance is that the quality of studies at Afya be of a high standard everywhere, no matter at which location one studies. This quality promise makes Afya popular with students on the one hand, and a valued partner of the Brazilian authorities on the other. Among other things, the latter would like to further improve medical care in the country with various scholarship programs, and also provides incentives for this, e.g., through tax breaks. Scholarship programs such as “Mais Médicos,” which means “More Doctors,” are aimed primarily at promoting care in remote regions. Afya is one of the few providers that does exactly that.

The company’s large service center in Belo Horizonte, in southeastern Brazil, is crucial to ensuring the consistent and comparable quality of Afya’s degree programs throughout the country. Here, in Brazil’s sixth-largest city, hundreds of employees provide centralized services for all Afya locations and their students. “By pooling its support functions, Afya has managed to achieve significant economies of scale across all locations,” says Benedikt Dalkmann. “Through Afya’s visible success, we have recently seen other providers attempting to grow their university networks. At the same time, this is also an incentive for the Afya team to keep improving its own offering for students.”

Enormous need for doctors

But what is it that makes a private medical school so attractive to first-year students that there are on average five applicants for every available study place every semester? “The medical profession is considered crisis-proof, and unemployment is virtually unknown among doctors,” explains Kay Krafft. The need for doctors is still enormous, especially in rural areas away from the major cities. While the OECD average is 3.5 doctors for every 1,000 inhabitants, the figure in Brazil, with its 215 million inhabitants, is around 2.5 – and in rural regions it is even significantly lower. Given such promising career prospects, students are willing to complete their training at a campus in one of the more remote parts of the country. And thanks to its good reputation and marketing reach, Afya is increasingly able to fill almost all of its available seats throughout the country, whereas single local universities, left to their own devices, often failed to do so before Afya took over. “By integrating them into the Afya Group, the new locations can be better utilized and also managed much more efficiently,” says Dalkmann.

One line of business where Afya expects to see a lot of future growth is digital health. Some 260,000 physicians in Brazil already use Afya’s digital services, e.g., for practice management, diagnosis, and telemedicine, and for issuing digital prescriptions. For example, Afya offers a tool for diabetes patients to monitor their condition without the need for repeated visits to the doctor. And Afya’s digital services bring yet another benefit. “Especially in Brazil’s underserved regions, our digital services give doctors more time to treat patients,” says Afya CEO Virgilio Gibbon. “This is another way in which we contribute to providing medical care to as many people as possible.” In addition to medical professionals, customers of the Digital Health business now include healthcare companies such as health insurers and pharmaceutical companies, which are particularly interested in the data generated, as well as in increasing efficiency and ensuring a consistent standard of care. To date, Afya has concluded 90 B2B contracts with more than 40 corporate customers.

Nor is Afya’s contribution to society limited to the training of medical professionals. At university sites such as IPEMED’s in São Paulo, nearly 500,000 free medical consultations were held last year. In total, the company says, more than 350,000 people benefited from activities under Afya’s various corporate responsibility programs. These included, for example, the distribution of several tons of food. And environmental protection is also important to Afya. In 2022, Afya generated a total of more than 17,000 megawatt hours of electricity through its own photovoltaic systems.

“Bertelsmann Education Group aims to further increase its stake in Afya in the medium term,” announces Kay Krafft. Beyond capital, the Education Group is also making its know-how and experience available for the further expansion of Afya. This applies, for example, to the further development of the business with corporate customers, the expansion of digital products, and even support for further mergers & acquisitions. “Our focus is clearly on growth. Together, we want to achieve revenues of more than 1.3 billion euros with the Education Group within the next five years, and an EBITDA margin of over 30 percent,” is Krafft’s expectation.