WHEELING & DEALING
The HR Snoops Revisited
By Jean-Marc Levy

First published in HRO Today (November 2003)
 

The employee screening sector continues to be a hotbed of M&A activity.

I am not a braggart. In fact, most folks in the prediction business usually avoid boasting about their accurate calls in order not to draw attention to their less-publicized misses. However, as I started penning this update to one of my earlier columns on workplace screening, I was struck by the accuracy of my predictions.

Earlier this year, I devoted a column to a group of fast growing HR snoops in order to illustrate the coming of age of the credential and background check services sector as a major segment of the HR Outsourcing industry. The main thesis was that in post-September 11 and post-Enron days, corporation boards, HR managers, and staffing companies alike had no choice but to devote significantly more time and resources to employee-screening activities aimed at reducing the growing vulnerability of their businesses to acts of cyber-fraud or cyber-terrorism potentially caused by their own employees. I also speculated that the very fragmented screening services sector, expected to grow at a very healthy double-digit annual clip for years to come, would be a very active ground for M&A and investment activity in an otherwise relatively lackluster market.

At the time, private-equity heavyweight Welsh Carson was rumored to be preparing a bid to acquire US Investigations Services, the large nationwide employee-screening business, at a valuation of $1.1 billion (one of the largest transactions the sector had seen to date); ChoicePoint, another leader in the field, was still digesting a string of acquisitions aimed at assembling a broad array of employee screening services, public record searches, drug and alcohol-testing services, DNA identification services, and full-service background investigations services; and First American Corporation had announced an agreement to merge its Screening Information Group with US Search.com, a publicly traded competitor, and was expected to spin off the combined entity into a new publicly-held company called First Advantage Corporation (of which First American would retain 80% ownership).

Fast forward almost a year.

• Welsh Carson has now completed its acquisition of a majority stake in USIS.

• ChoicePoint has added three more companies to its growing list of offerings: National Data Retrieval, a provider of public records information for bankruptcies, civil judgments, and federal and state tax liens; Mortgage Asset Research Institute, which operates databases that help monitor and identify fraud, misrepresentation and misconduct in the mortgage industry; and the insurance-related businesses and underlying technology of TML, a consulting and information services provider offering insurance binding services, title file services and other insurance-related services.

• First Advantage Corporation was spun off from First American in June, and under the leadership of acquisitive CEO John Long (former president of First American’s Screening Information Group) immediately began an aggressive acquisition campaign. In the course of a few months, First Advantage acquired Liberatore Services, an employment screening and investigative services firm; Total Information Source, a regional provider of criminal court records and employment background screening services in the Mid-Atlantic states; Continental Compliance Systems and Employee Information Services, two regional substance abuse testing services firms; and Omega Insurance Services, a provider of fraud investigations for insurers, third-party administrators and self-insured employers nationwide.

• Last but not least, Reed Elsevier joined the M&A party with its acquisition of Dolan Media’s public-records businesses for its LexisNexis risk management division, reinforcing its commitment to the employee screening space by strengthening its offerings in the areas of fraud, ID theft, and Homeland Security.