First Advantage – a leading provider of employment background screening, identity, and verification solutions – recently announced that it has entered into a definitive purchase agreement to acquire Sterling Check, a provider of background screening and identity services. And First Advantage will issue a combination of cash and stock valuing Sterling at approximately $2.2 billion, including Sterling’s outstanding debt.
First Advantage and Sterling provides complementary technology solutions and services that enable employers across healthcare, retail & e-commerce, transportation, manufacturing, financial services, and other industries to manage risk and hire the best talent. And customers will benefit from accelerated investment in innovation and access to a broader suite of products and solutions to meet their needs, fueling the combined company’s growth.
Building on pro forma combined revenue of $1.5 billion for the year ended December 31, 2023, the deal is expected to deliver at least $50 million in run-rate synergies, implying immediate double-digit EPS accretion on a run-rate synergy basis. And the combined company will have greater revenue diversification across customer segments, industries, and geographies, reducing seasonality and improving resource planning and operational efficiency.
Following the deal, the companies expect First Advantage to continue compounding EPS at a teens growth rate over time through a combination of topline growth, ongoing synergy capture, and significant deleveraging via strong organic free cash flow generation. And First Advantage will share additional forward-looking financial information regarding the transaction’s impact at or around closing time.
Certain entities advised by or affiliated with Goldman Sachs – which own approximately 52.8% of Sterling’s outstanding shares, entered into a support agreement pursuant to which they have delivered written consent approving the transaction. And CDPQ is an investor in one of these entities.
Following the deal’s closing, Scott Staples will continue to serve as Chief Executive Officer of First Advantage. ANd Josh Peirez, Sterling’s Chief Executive Officer, will be offered a seat on the First Advantage Board of Directors. First Advantage will continue to be headquartered in Atlanta, GA.
The deal consideration comprises approximately $1.2 billion in cash and 27.15 million shares of First Advantage common stock. And under the terms of the agreement, Sterling shareholders will elect to receive either $16.73 in cash or 0.979 shares of First Advantage common stock for each Sterling share.
The shareholder election will be subject to proration – resulting in approximately 72% of Sterling’s shares being exchanged for cash consideration and 28% being exchanged for First Advantage common stock. And the $16.73 per share consideration represents a premium of 35% to Sterling’s closing price of $12.42 on February 28, 2024, and a 26% premium to Sterling’s 30-day volume weighted average price (VWAP). The Sterling shareholders are expected to own approximately 16% of the combined company after closing, and current First Advantage shareholders will own approximately 84%.
First Advantage plans 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. And First Advantage has secured fully committed financing from Bank of America, N.A., Barclays Bank PLC, Bank of Montreal, Jefferies Finance LLC and Royal Bank of Canada.
The deal has been unanimously approved by the Boards of Directors of both companies. And the deal is expected to close in approximately the third quarter of 2024, with the closing and timing thereof subject to required regulatory approvals, clearances, and other customary closing conditions.
J.P. Morgan Securities LLC acted as lead financial advisor to First Advantage. And BofA Securities, Inc., Barclays Bank PLC, BMO Capital Markets Corp., Jefferies Finance LLC and RBC Capital Markets also served as financial advisors to First Advantage. Simpson Thacher & Bartlett LLP served as First Advantage’s legal counsel in the transaction.
Goldman Sachs & Co. LLC and Citigroup Global Markets Inc. acted as financial advisors to Sterling. And Fried, Frank, Harris, Shriver & Jacobson LLP served as Sterling’s legal counsel in the transaction.
KEY QUOTES:
“We are thrilled to announce the acquisition of Sterling, demonstrating our commitment to delivering high-quality, cost-effective employment background screening and identity verification solutions that enhance value for customers by helping them hire smarter and onboard faster, while also positioning First Advantage for long-term value creation. This combination unlocks efficiencies and opportunities to fuel incremental growth and invest in new technology solutions, including AI-driven automation, while further diversifying our business for greater resilience. We look forward to welcoming Sterling’s talented employees to First Advantage and implementing best practices from both organizations to better address the needs of applicants and employers of all sizes and across all verticals.”
– Scott Staples, Chief Executive Officer of First Advantage
“We are excited to be combining with First Advantage to accelerate Sterling’s strategic goals and deliver added value for our company, shareholders, clients, and employees. We look forward to offering clients a broader suite of solutions, while maintaining the excellent service they have come to expect. Importantly, this transaction delivers immediate value to Sterling shareholders, as well as the opportunity to participate in the compelling, long-term upside potential of a combined company that is positioned better than ever to serve the dynamic needs of our customers.”
– Josh Peirez, Chief Executive Officer of Sterling
“Goldman Sachs and CDPQ are very pleased with Sterling’s performance over the last eight years. Josh has been an outstanding leader and partner, growing the business, and successfully bringing the company to the public markets. We are excited by the transformational opportunity offered by combining with First Advantage.”
– Adrian Jones, Global Chairman & Co-Head of the Private Equity business within Goldman Sachs Asset Management
