How Million Dollar Acquisition in Education Has Resulted in Unpaid Teachers | São Paulo

“I went for a medical procedure and, on two occasions, I arrived at the scene and was informed that my health plan was suspended due to lack of payment by the company. In view of the embarrassment, I offered to pay for the session, but they said it could not be like that and that I would need to reschedule,” says a teacher at Colégio Palmares, a high-end school in the city of São Paulo, who spoke to BBC News Brasil on condition of anonymity.

The suspension of the health plan due to non-payment is just one of the faces of the financial crisis faced by the school, which charges its students with tuition of around R$5,000 and was bought by an investment group — the LIT Capital Group — in November 2020.

Since then, students, teachers and employees have partially returned to classroom classes amidst the lack of basic supplies such as towel to dry hands, alcohol, soap and bread for breakfast for auxiliary workers, according to the professionals’ reports.

In June came the first delays in salaries, which were repeated in August and arrived accompanied by a wave of layoffs.

Some employees say they were informed that they would be fired and that they would have to go to court to receive their rights, or else they could continue working, but rehired as a legal entity (“pejota”), with lower wages.

“We are extremely shaken, employees crying in the hallways because they don’t know what to do. As this came to the maintenance people first, they think we are more laymen on the subject. The atmosphere is terrible, everyone is feeling threatened. I myself am with anxiety crisis and I’m not sleeping,” said an employee, who was fired the following week after talking to BBC News Brasil, for not accepting being “pejotized”.

SinproSP (São Paulo Teachers’ Union), an entity that represents the state’s private school teachers, is following the case and should file a complaint against the school with the Public Ministry of Labor this week.

In a statement, Colégio Palmares confirmed the delay in salaries on two occasions, but said that the payments for July 2021 should be paid in the next few days. By telephone, the school’s marketing team confirmed the dismissals, but denied the information that the workers had been threatened.

The official also said that he “had no information” about the allegations of auxiliary workers that they were being fired without receiving severance pay and upon a proposal for “pejotization” with a reduction in wages.

Also according to him, the layoffs and wage delays happen as a result of the difficulties faced by the school in the pandemic. “The layoffs are taking place due to the current situation in the country. It is a matter of survival as a result of the pandemic,” the spokesman said.

The demand from BBC News Brasil was answered by the marketing official, after the external press office hired by Palmares informed that it could not provide the service because it was also not receiving it from the school.

The entry of financial investors into Brazilian basic education

The crisis faced by Palmares after its acquisition by an investment group is the materialization of the worst fears of parents, teachers and employees when a merger or acquisition takes place in the private education sector.

According to consultants specialized in the education market, the movement of entry of financial investors and large groups in the sector started in higher education and reached basic education even before the pandemic.

Now, with the financial difficulties faced by many private schools amid the loss of students and the granting of discounts, the sector’s consolidation movement — jargon from the business world for the joining of companies through the purchase and union of businesses, which leads to a greater market concentration — should intensify.

“What we are seeing in the basic education sector is what happened in the last century — in the late 1990s — in higher education institutions”, says Francisco Borges, a consultant at the FAT Foundation (Fundação de Apoio à Tecnologia).

“The service sector in Brazil is still very unprofessional, it is familiar. So it is very common that there is interest from the financial sectors to try to ‘attack’ the service by acquiring these institutions”, completes the specialist.

“The expectation is to gain in scale. Given that a family institution does not have the budget or resources to grow, they see that these groups have strong enough brands to increase in scale”, he observes.

Fear in the school community

A common feature when an acquisition is announced in the basic education sector is the fear of students, parents, teachers and staff that the school will lose its characteristics, such as the pedagogical line, and lay off workers in search of cost reduction.

Consultant Francisco Borges, from the FAT Foundation, believes that the concerns make sense.

“All these movements [de fusões e aquisições] are a question, an unknown,” says the expert.

“As a rule, what puts us in a school is the trust in that teaching method. It is not certain that those who bought will respect the original pedagogical project, it is very common for these groups to buy, see some operational gains, but in general they tend to lower the cost.”

“The teachers’ union is what has the most to worry about, because when higher education institutions were purchased, there was a standardization of quality, and this standardization was ‘from the bottom down'”, he observes.

Fábio Zambon, director of SinproSP who is following the case of Colégio Palmares through the union, is critical of the new model.

“It is a disaster for education in Brazil, because they are investment groups that seek profit, they will treat education as a commodity,” he says. “They are not concerned with the pedagogical model, but with what the school can bring in profit.”

Zambon affirms, however, that the case of Palmares is particular within the panorama of schools purchased by groups in São Paulo. “There were problems like this: the investor group comes in, sends people away, restructures everything. This type of problem, there was. But there was no problem of not paying people,” he observes.

According to him, the businessman currently responsible for LIT Capital Group, Carlos Augusto Melke Filho, argued to the union that the delay in payments was due to the bank blocking the escrow account in which the school receives tuition fees, in the midst of a process of transition in which Melke Filho is directly taking over the administration of the school.

This is not the entrepreneur’s first business in the education sector.

President of Lide MS (Group of Business Leaders of Mato Grosso do Sul), the businessman became a defendant in 2019, suspected of participating in an alleged scheme for the sale of places for medical courses and fraud of R$ 500 million in the Fies program federal government scholarships for private higher education.

Melke Filho was one of the targets of Operation Vagatomy, by the Federal Police, which investigated the Universidade Brasil, a teaching institution in the interior of São Paulo.

BBC News Brasil tried to contact attorney Antonio Cláudio Mariz de Oliveira, who represented Melke Filho in 2019 in this case, but Advocacia Mariz de Oliveira reported that the criminalist is no longer in charge of the defense.

The pandemic and the private education sector

“Like many Brazilian companies, Colégio Palmares also had its activities affected by the pandemic”, justified the company in a statement, regarding the delay in salaries.

Indeed, the private education sector has been hit hard by the pandemic — an impact that should intensify mergers and acquisitions in the sector, analysts say.

According to the 2020 School Census, basic education in general lost 579,000 students between 2019 and 2020, as a result of the public health crisis that prevented in-person classes across the country for months.

However, despite the fact that private education represents only 18.6% of the total offer of vacancies, it was responsible for almost 60% of enrollment losses. There were 235.4 thousand enrollments lost in public education (-0.6%), against 343.6 thousand in private (-3.8%).

In a survey in a more restricted universe, of about 2,000 schools, educational consultancy Rabbit found that the loss of students continued from 2020 to 2021. According to a company survey, between January 2020 and March 31 this year, The universe of schools analyzed had a reduction of 34% in the number of students.

For Christian Coelho, president of Grupo Rabbit, unemployment and the loss of family income played an important role in reducing the number of enrollments in private schools. He assesses, however, that there was also a disbelief on the part of parents regarding the migration from teaching to the virtual environment.

“In early childhood education, the students left right at the beginning”, recalls Coelho. “It became the key to the pandemic, students left early childhood education, because it is very difficult to do it online with minors. Larger schools, on the other hand, [que oferecem do ensino infantil ao médio] lost enrollment throughout the year, even offering an average of just over 20% off.”

“There was a gigantic portion of fear [da contaminação], and also the parents associated the online class with the non-class. For example, the father paid R$1,000 for full-time, now for an hour of online classes a day he wanted to pay R$100, without being able to see the methodological change”, he considers.

Borges, from FAT Foundation, notes that this combination of losing students and granting discounts has weakened the financial situation of many schools. And that this should result in new mergers and acquisitions in the sector.

“The pandemic must be a great catalyst for these processes, because very good schools, which were not very profitable, but were financially healthy, became deficient,” he says. “The maintainer, having no other option, ends up having to sell his institution. So the pandemic must be a major milestone of many educational institutions being bought by other education groups or by investment groups.”

For the consultant, the problem is that this type of business can jeopardize the continuity of traditional institutions, if the acquisition does not result in the result expected by the investor.

“Investor groups call schools ‘assets’. Asset is an asset and these groups have no heart or soul, so to speak. If the school they invest in doesn’t work out in three, four years, they close the business and that’s it.” , he claims.

Coelho, from Rabbit, assesses that there are equal risks in a family business or one acquired by a large group. “An unsuccessful acquisition can compromise yes [a continuidade da empresa]. But it is the same risk that runs a family business that has poor management, the risk is the same for everyone”, he considers.

Agree with one or the other, the feeling of Palmares employees after the sale of the school founded in 1975 is one of frustration.

“Parents are already aware that teachers are not being paid, however, he [Melke Filho] he answers his parents saying that there will be a new school being built”, says the teacher who opted for anonymity for fear of reprisals. The great feeling we have is that it’s a bankruptcy strategy, that they want to bankrupt high school.”