I would like to share with you a mega-deal from last week. On February 29, 2024, the two US credit reporting agencies First Advantage Corporation and Sterling Check Corp. announced that they have signed a takeover agreement.

According to the agreement, First Advantage will acquire its competitor Sterling Check through a combined cash and stock deal. Including debt, the deal values Sterling Check at a whopping $2.2 billion (USD – approximately 2 billion euros).

Before delving into further details of the acquisition agreement, let me introduce you to the two companies.

Brief overview of the companies The Atlanta, Georgia-based First Advantage Corporation is a leading provider of personnel screening, identity, and verification solutions. The company was founded in 2002 as Fastball Intermediate, Inc. and changed its name to First Advantage Corporation in March 2021.

Using complex software solutions, the company conducts comprehensive analyses (background checks) of applicant profiles. Its products and solutions are used by global corporations, medium-sized and small businesses in the areas of risk assessment, compliance, supplier management, brand protection, security, and/or hazard prevention.

First Advantage conducts background checks in over 200 countries. The company has more than 30,000 customers. In fiscal year 2023, the approximately 5,800 First Advantage employees generated sales of $763.76 million USD. This was 6% lower than the previous year. Net profit was $37.29 million USD, significantly below the previous year’s value of $64.6 million USD.

Founded in 1975, Sterling Check Corp. offers technology-based background and identity verification services in the United States, Canada, Europe, the Middle East, Africa, and the Asia-Pacific region. The company’s services are provided through a cloud-based technology platform.

Sterling Check’s clients come from various industries such as healthcare, financial and corporate services, industry, retail, media and entertainment, transportation and logistics, hospitality, education, and administration.

Sterling Check has over 50,000 clients worldwide and conducts more than 110,000 background checks annually.

The credit reporting agency was previously known as Sterling Ultimate Parent Corp. and changed its name to Sterling Check Corp. in August 2021. Sterling Check is headquartered in Independence, Ohio (near Cleveland – approximately 700 km west of New York City).

The approximately 6,000 Sterling employees generated annual sales of $766.8 million USD in 2022. Operating profit (EBIT) was $57.7 million USD.

Further details from the acquisition agreement According to the acquisition agreement, Sterling shareholders will receive either $16.73 in cash or 0.979 First Advantage common shares for each of their shares. Shareholders‘ choice is subject to a quota, which means that approximately 72% of Sterling shares will be exchanged for cash and 28% for First Advantage common shares.

The offered $16.73 per Sterling share represents a 35% premium to the closing price on February 28, 2024, of $12.42 USD. After the transaction is completed, Sterling shareholders will own approximately 16% and First Advantage shareholders approximately 84% of the combined company.

Through the acquisition of Sterling Check, First Advantage aims to expand its market position and invest in new technologies, as Scott Staples, CEO of First Advantage, emphasized in a statement regarding the planned takeover:

„This combination provides opportunities for efficiency gains, growth, and investment in new technology solutions, including AI-driven automation, as we continue to diversify our business to achieve greater resilience.“

Market reaction On February 29, 2024, the day after the announcement of the acquisition agreement, Sterling Check’s stock price jumped by over 26% to $15.67 USD. This was only slightly below the $16.73 USD offered by First Advantage. Investors apparently anticipate a smooth completion of the acquisition.

On the same day, First Advantage’s stock price plummeted. It lost almost 7% on the US technology exchange NASDAQ and closed at $15.66 USD. The reason for this drop was mainly the above-mentioned sharp decline in profits in 2023, which First Advantage also announced on February 29, 2024.

What’s next The transaction is expected to be completed in the third quarter of 2024. Before that, Sterling Check shareholders must approve the deal by tendering their shares in sufficient numbers, and the relevant regulatory authorities must also approve the transaction.