Sterling Acquisition: Key Details, Impact, and What Comes Next

First Advantage's acquisition of Sterling Check Corp. for $2.2 billion marks a significant consolidation in the background screening and identity verification industry. This strategic move is set to enhance First Advantage's global reach and technological capabilities, promising improved customer experiences and operational efficiencies. The deal underscores the growing importance of advanced verification solutions in today's interconnected world.

What Is Sterling?

Sterling, a leader in comprehensive background check services, offers a range of solutions including identity verification, criminal background checks, and financial and business checks. Known for its global reach and verticalized approach, Sterling provides industry-specific services and powerful technology to ensure fast turnaround times and robust integrations. Trusted by over 50,000 clients worldwide, including many Fortune 500 companies, Sterling's client-centric services are designed to improve processes and enhance compliance.

Who Acquired Sterling?

First Advantage is a prominent provider in the background screening industry, offering a wide array of services such as comprehensive employment background checks, drug and alcohol testing, and identity fraud mitigation. The company serves diverse sectors including banking, healthcare, retail, and transportation. Known for leveraging data and technology, First Advantage helps organizations make informed hiring decisions. Its market influence is underscored by innovative solutions like Next-Gen RightID and a strong focus on customer care.

When Was Sterling Acquired?

First Advantage completed its acquisition of Sterling Check Corp. on October 31, 2024. This acquisition comes at a pivotal time when the background screening industry is increasingly leveraging technology, particularly Artificial Intelligence and Digital Identification, to enhance services. The timing also aligns with a broader industry trend towards consolidation, driven by the need for operational efficiencies and innovation amidst a turbulent global economy and heightened regulatory scrutiny.

Why Was Sterling Acquired?

• Market Expansion: The acquisition strengthens First Advantage’s global reach and diversifies its vertical and geographic exposure, creating a more well-balanced portfolio. This expansion is expected to reduce seasonality and improve resource planning and operational efficiency. Additionally, the merger is projected to create a screening services firm with an annual revenue of around $1.5 billion from clients in various industries, including healthcare, retail, and financial services.
• Technology Integration: The acquisition extends First Advantage’s high-quality and cost-effective background screening, identity, and verification technology solutions. It enables increased investment in Artificial Intelligence and next-generation Digital Identification technologies for enhanced customer and applicant experience. The combined company will benefit from accelerated investment in innovation and access to a broader suite of products and solutions.
• Competitive Advantage: The acquisition combines industry-leading platforms and innovative solutions to deliver an enhanced customer experience. The transaction is expected to deliver between $50 million and $70 million in run-rate synergies, implying immediate double-digit EPS accretion on a run-rate synergy basis. The combined company will offer complementary technology solutions across various industries, helping employers mitigate risk and hire the best talent, positioning First Advantage for long-term value creation and increased resilience.

Acquisition Terms

• Acquisition Price: $2.2 billion
• Payment Method: The transaction consideration is comprised of approximately $1.2 billion in cash and 27.15 million shares of First Advantage common stock. Sterling shareholders will elect to receive either $16.73 in cash or 0.979 shares of First Advantage common stock for each Sterling share, subject to proration.
• Key Conditions or Agreements:
  • The transaction has been unanimously approved by the Boards of Directors of both companies.
  • The transaction is subject to required regulatory approvals, clearances, and other customary closing conditions.
  • Certain entities advised by or affiliated with Goldman Sachs & Co. LLC, which own approximately 52.8% of Sterling’s outstanding shares, have entered into a support agreement approving the transaction.
  • First Advantage intends to fund the cash portion of the transaction and retire existing Sterling debt through the issuance of $1.8 billion of new debt and the use of balance sheet cash.
  • The transaction is expected to close in approximately the third quarter of 2024.
  • The acquisition is expected to deliver between $50 million and $70 million in run-rate synergies and immediate double-digit EPS accretion on a run-rate synergy basis.
  • Commitment to facilitating a seamless integration of corporate cultures and executing synergy plans.
  • Increased investment in new technology solutions, including AI-driven automation.
  • Sterling CEO Josh Peirez will be offered a board seat at First Advantage.

Impact on Sterling

The acquisition of Sterling by First Advantage is set to bring significant changes to operations and management. Scott Staples will continue as CEO of the combined entity, while Sterling's CEO, Josh Peirez, will join the First Advantage Board of Directors. The integration will focus on combining business operations and corporate cultures, aiming for efficiencies and growth opportunities. This merger will also diversify revenue streams across customer segments, industries, and geographies, enhancing the company's global reach and operational efficiency.

Product offerings and services are expected to see substantial enhancements. The acquisition will extend First Advantage’s background screening, identity, and verification technology solutions, providing customers with a broader suite of products. Increased investment in AI-driven automation and next-generation digital identification technologies will improve customer and applicant experiences. Employee reactions have been positive, with a focus on seamless integration and best practices from both organizations. Customers are anticipated to benefit from high-quality, cost-effective solutions, smarter hiring processes, and faster onboarding.

For founders considering business transitions, tools like Sunset can assist in managing such processes compliantly, ensuring a smooth and efficient transition.