(Reuters) -Background screening services provider First Advantage will buy rival Sterling Check in a $2.2 billion cash-and-stock deal, the companies said on Thursday, seeking to navigate slowing demand due to the turbulent global economy.
The deal is expected to deliver cost-savings of at least $50 million and would create a screening services firm with an annual revenue of around $1.5 billion from clients in industries ranging from healthcare and retail to financial services.
"This combination unlocks efficiencies and opportunities to fuel incremental growth and invest in new technology solutions, including AI-driven automation," First Advantage CEO Scott Staples, who will head the combined firm, said in a statement.
The offer consists of about $1.2 billion in cash and 27.15 million shares of First Advantage common stock. It values each share of Sterling Check at $16.73, a premium of 35% to the stock closing price on Wednesday.
Sterling's shares were more than 24% higher, while First Advantage's stock was down nearly 13%.
Investor skepticism over big deals has spiked as antitrust regulators in Europe and the U.S. have in recent months taken aim at consolidation across industries, scuttling deals such as Adobe (NASDAQ:ADBE)'s $20 billion buyout of designer platform Figma.
The deal comes as the companies reported fourth-quarter revenue declines with the uncertain economy weighing on demand for their screening and verification services.
"The challenges created by the macro environment in 2023 lasted longer than we had anticipated, leading to base declines in excess of our initial expectations" said Sterling CEO Josh Peirez, who will be offered a board seat at First Advantage.
First Advantage investors are expected to own about 84% of the merged firm after the close of the deal, likely in the third quarter of 2024, while Sterling shareholders will own about 16%.