In a strategic acquisition aimed at consolidating market leadership in background screening and identity verification, First Advantage Corporation (NASDAQ: FA) is set to acquire Sterling Check Corp. (NASDAQ: STER). This merger, formalized through a merger agreement, offers Sterling shareholders a choice between cash and stock consideration and has set the stage for a potentially transformative partnership in the industry. Here’s an in-depth look at the merger structure, investor options, regulatory considerations, and what this means for both companies and their stakeholders.
Overview of the First Advantage and Sterling Merger
First Advantage announced its acquisition plan for Sterling Check Corp. on February 28, 2024. The agreement outlines a cash and stock exchange structure, enabling First Advantage to enhance its reach and capabilities within the identity and background verification sector. By combining forces, these companies aim to deliver more robust and diverse solutions to customers globally.
Transaction Structure and Consideration Options
Sterling shareholders have the option to receive:
Cash Consideration: $16.73 per share in cash, without interest.
Stock Consideration: 0.979 shares of First Advantage common stock per share of Sterling.
*The deadline for election is 5PM Eastern, on October 24th 2024
To balance the interests of both companies and their shareholders, the transaction includes a proration mechanism:
72% of Sterling shares will be converted to cash.
28% will be exchanged for stock in First Advantage.
For shareholders not making an election, a default proration method applies, automatically allocating cash or stock based on this 72/28 split.
Deadlines and Important Dates
Key dates to note in this merger process:
Election Deadline for Shareholders: Sterling shareholders must elect their preferred merger consideration (cash or stock) by October 24, 2024, 5:00 p.m. ET.
Expected Closing Date: Subject to regulatory approval and other conditions, the merger is anticipated to close by October 31, 2024.
Sterling shareholders with vested shares should submit their election materials by the deadline, while those holding shares through a bank, broker, or nominee might have earlier internal deadlines. Fidelity Stock Plan Services, LLC manages this process for eligible holders of Sterling common stock equivalents and unvested shares.
Strategic Rationale and Expected Benefits of the Merger
The merger is driven by the shared goal of enhancing service breadth and operational efficiencies across international markets. First Advantage and Sterling collectively provide screening and identity verification solutions to thousands of customers, spanning numerous industries and regions. Key anticipated benefits include:
Enhanced Service Offerings: By merging capabilities, both companies are expected to broaden their service range, benefiting customers with comprehensive, tech-enabled identity and background verification solutions.
Market Positioning: The combination is poised to bolster First Advantage’s market position, expanding its presence in North America, Europe, Asia-Pacific, and Latin America, and potentially increasing market share in the growing background verification sector.
Financial Synergies and Operational Efficiencies: The merger may generate cost savings and revenue synergies, optimizing operational expenses and enhancing profitability, ultimately adding shareholder value over time.
Regulatory Status and Conditions
As of the announcement, the merger is subject to standard regulatory clearances and other closing conditions. Both companies’ boards of directors unanimously approved the merger, highlighting the strategic alignment and anticipated operational benefits. The process also involved regulatory filings with the U.S. Securities and Exchange Commission (SEC), including a Form S-4 registration statement containing an information statement/prospectus to inform Sterling shareholders of their rights and considerations.
Support and Voting by Key Shareholders
Support from Sterling’s significant shareholders was secured early on. Broad Street Principal Investments, L.L.C., Checkers Control Partnership, L.P., and Broad Street Control Advisors, L.L.C., collectively referred to as the Specified Stockholders, hold approximately 53.5% of Sterling’s outstanding shares. Through a written consent agreement dated February 28, 2024, these shareholders approved the merger terms, solidifying majority support and eliminating the need for further shareholder voting on the merger.
Appraisal Rights for Sterling Shareholders
Under Section 262 of the Delaware General Corporation Law (DGCL), Sterling shareholders (excluding the Specified Stockholders) can seek an appraisal for their shares if they disagree with the transaction terms. This process allows dissenting shareholders to receive the “fair value” of their shares, determined by the Delaware Court of Chancery. To exercise these rights, eligible shareholders must follow specific procedural steps within 20 days after receiving the information statement/prospectus, distributed on June 11, 2024.
Financial Outlook and Stock Consideration Implications
Sterling shareholders choosing stock consideration should be aware that the final value of First Advantage stock received will fluctuate based on market performance. The stock exchange ratio remains fixed at 0.979 shares of First Advantage stock for each share of Sterling, so shareholders are encouraged to review current stock valuations and market conditions before making their election.
Conclusion: A Strategic Move with Potential Long-term Benefits
The First Advantage and Sterling merger reflects a strategic alignment aimed at enhancing both companies’ strengths in the background screening and identity verification sector. For Sterling shareholders, this acquisition provides multiple avenues for consideration, either through cash or stock, while allowing participation in a promising growth trajectory with First Advantage.
By merging their capabilities and resources, First Advantage and Sterling are poised to reinforce their market presence and better serve their diverse, global clientele. Investors should keep an eye on the completion process and subsequent performance, as the true impact of this merger on First Advantage’s stock and financial health will unfold over time.
For further details, investors can access more information and SEC filings related to the merger on First Advantage’s website or the SEC’s official site, ensuring they make informed decisions as this merger progresses.
FAQs
What happens if a Sterling shareholder doesn’t make an election?
If no election is made, Sterling shareholders will automatically receive a prorated distribution of cash and stock consideration based on the 72/28 split outlined in the agreement.
Are there any penalties for missing the election deadline?
While there are no penalties, shareholders who don’t elect by the deadline may not have their preferred allocation of cash or stock consideration.
How will the merger affect First Advantage’s stock performance?
Although mergers can increase growth and profitability, they also carry integration risks. First Advantage’s stock may experience volatility as the companies align operations and realize anticipated synergies.
What are the benefits of choosing stock consideration over cash?
Stock consideration offers Sterling shareholders potential future value appreciation, allowing them to participate in the post-merger growth of First Advantage. However, stock values fluctuate, which may lead to higher risks than the fixed cash payout.
Is shareholder approval still required?
No further action is required from Sterling shareholders due to the pre-existing support from majority stakeholders.
STER FA Merger
STER FA Merger
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