Consolidation is a natural step in the evolution of all industries. Larger players identify opportunities to fortify their strengths or fill gaps in their offerings, and, at the same time, smaller companies recognize they simply don’t have – and can’t acquire – the resources needed to meet future market demand. The Background Investigations industry is no exception.
As the demand for background checks continues to rise and the complexity of these screenings increases, there has been a corresponding amount of merger and acquisition (M&A) activity in the industry. Each of the past five years has seen at least one acquisition in excess of $700 million, including four that have exceeded $1 billion. These include:
- 2018 – First Advantage was acquired by Symphony Technology Group for $1.3 billion
- 2019 – HireRight was acquired by Altegrity for $1.05 billion
- 2020 – Sterling Infosystems was acquired by Calera Capital for $700 million
- 2021 – Checkr was acquired by Vista Equity Partners for $5.1 billion
- 2022 – GoodHire was acquired by Hellman & Friedman for $7.1 billion
What’s Driving Industry Consolidation?
Regardless of the industry, most enterprises cite a similar list of benefits when they acquire, or merge with, a rival company. These often include things such as economies of scale, enhancement of product portfolios, technological gains, and geographic expansion.
However, while the rationale for the providers is clear, the benefits for customers are often murkier. In theory, customers of the new entity should benefit from the above-listed additions and efficiencies, but the reality is that these transactions are rarely as seamless as the participating companies claim. Integrating two companies’ IT infrastructures, data, processes, and cultures does not happen with a flick of a switch.
It can take months, or in some cases years, before all the kinks are worked out. Sometimes the promise of the new company is never fully realized. When private equity firms are involved, these M&A’s often are accompanied by workforce reductions and other “right-sizing” initiatives designed to make the new company more profitable, but not always to the benefit of the customer.
What if Your Background Screening Company is Acquired?
Does all this mean that it’s bad to have your background screening partner acquired by a larger company? No, not necessarily. Depending on your company’s size and needs, it could serve you well.
Regardless of your business objectives, all companies should monitor such developments closely. Here are some things to be mindful of in the event of a merger or acquisition:
- Changes in offerings. The acquiring company may have different packages or procedures than your previous partner (the acquired company). Ask if the merger/acquisition will affect the way that your background checks are conducted, how the information will be collected, or the manner in which results will be reported.
- Fee structure. Regardless of the reasons behind the move, acquisitions and mergers cost money. The acquiring company may look to recoup some of these costs by charging higher fees for the same services or by requiring additional services that you do not want or need. Keep a close eye for any changes to your bill.
- Customer service. Each of the companies involved in the M&A undoubtedly have their own customer service staff. In many cases, the newly formed entity will look to consolidate these teams in an effort to save money and streamline operations. Make sure any such changes do not negatively affect your customer service experience or the knowledge/skill level of the newly consolidated staff.
- Loss of data. There is always a risk that data could be lost or corrupted during an acquisition or merger. Find out what steps the new company is taking to secure your data and to back up historical data.
- Communication. All good partnerships – business or otherwise – are built upon trust. Reach out to senior executives of the new company to understand how they value your business. If it turns out that you are now a small fish in a big pond, it could be reflected in the quality of service you receive.
Expect More Consolidation in the Future
Amid the current wave of mergers and acquisitions in the background screening sector, a landscape of sustained transformation is taking shape. As we step into the future, understanding these changes is key to informed decision-making. By understanding the changes that could occur, you can better anticipate challenges that are likely to arise.
Taking a proactive stance in the wake of a merger or acquisition can ensure you have the right partner for your needs going forward and that the net result will be the same or better. Anything less should have you reaching out to other providers in the field to determine who may offer a better fit for your company’s goals and expectations.
In this transformative era, taking a proactive stance post-merger is crucial. It ensures not only alignment with your business objectives but also the potential to enhance service standards. By engaging actively, you’re guarding your interests and setting the stage for a partnership that goes beyond the status quo. To ensure the quality of your background investigations remains consistent, reach out to info@commercialinvestigationsllc.com to learn more.