Yesterday morning I woke up to an iPhone with more messages, questions, comments and concerns than I have ever received. I was shocked but not too surprised, we more or less predicted consolidation of the top 3-5 screening companies, but didn’t necessarily expect these two companies, this early in the year.
In the background screening industry, acquisitions serve as pivotal moments that shape the competitive landscape and redefine industry dynamics. As an industry insider, pioneer and evangelist with a deep-rooted connection to EmployeeScreenIQ, the company we founded in 1999, I've witnessed firsthand the transformative power of strategic acquisitions. I reflect, the recent acquisition of SterlingCheck by First Advantage not only marks a significant milestone but also evokes a sense of personal reflection and nostalgia for me.
With a rich history of acquisitions, both Sterling and First Advantage have established themselves as formidable players in the background screening sector. For me, the journey began with the founding of EmployeeScreenIQ, a venture that holds special significance due to its roots in my entrepreneurial journey. While EmployeeScreenIQ was just one among many acquisitions for Sterling, its role as the cornerstone of my entrepreneurial endeavors imbues it with a unique importance. Similarly, First Advantage's history of strategic acquisitions underscores the company's commitment to growth and innovation in the background screening space.
The Latest Acquisition:
First Advantage's acquisition of SterlingCheck is nothing short of monumental, both in terms of its scale and implications for the industry. Valued at a staggering 2.2 billion dollars, this acquisition comprises a substantial cash component, along with shares of First Advantage stock. Notably, this acquisition also encompasses the assumption of SterlingCheck's debt, underscoring the confidence and strategic vision behind this move.
Key Figures and Financial Insights:
Delving deeper into the financial aspects of this acquisition reveals its significance. At a 12x multiple of SterlingCheck's 2023 EBITDA, the 2.2 billion dollar valuation speaks volumes about the company's performance and potential. Moreover, the premium of 35% on SterlingCheck's stock price further underscores the confidence in its value and future prospects. With the combined revenue of over 1.5 billion dollars, the newly formed entity is poised to make a substantial impact in the background screening industry, representing a significant portion of the estimated 5.5 billion dollar market. While this Total Addressable Market number is fluid, IQubed Advisors tracks the market closely and we have a high level of confidence in our number versus what the industry reports.
Implications and Future Outlook:
The implications of this acquisition are far-reaching, both for the companies involved and the broader industry landscape. For SterlingCheck, soon to be part of First Advantage, the acquisition opens up new opportunities for growth, innovation, and market expansion. At 50 million in synergies on the low end, resulting from this merger are expected to drive operational efficiency and enhance the delivery of background screening solutions to clients worldwide. Additionally, the acquisition underscores the increasing importance of background screening services in today's dynamic business environment, where mitigating risks and ensuring compliance are paramount. My only questions is this, who spearheaded this effort? Was it FADV, Sterling, large investors such as Goldman Sachs, time will tell, but we do know this, both share prices are far below their original IPO so follow the money.....
Conclusion:
As the background screening industry continues to evolve and adapt to changing market dynamics, acquisitions play a pivotal role in shaping its trajectory. The acquisition of SterlingCheck by First Advantage marks a significant milestone in this journey, reflecting the ongoing consolidation and growth within the sector. As these two industry giants come together, they will be challenged to redefine the standards of excellence in background screening solutions, setting the stage for a future characterized by innovation, efficiency, and unparalleled service delivery. Will they be successful? Will smaller companies be able to compete? This deal is expected to close in the third quarter of 2024.
Previous Post
