October 25th, 2023 | Sterling
M&A in Retail: Why Robust Background Screening Is Critical for Success
Mergers and acquisitions (M&A) have become a common strategy for retail companies seeking growth, market expansion, and increased competitiveness. Recently, there has been a major uptick in M&A in the retail sector. During these highly complex, often very public transactions, the role of robust due diligence investigations can offer protection from unforeseen challenges. Additionally, as companies merge, a strong background check process will make a good first impression on all candidates.
To get more insight into the importance of involving your background screening provider early on in the M&A process, Sterling Live interviewed Jeff Walmsley, Sterling’s Retail Industry Practice Leader. The full interview can be seen below:
Question: Can you talk a little bit more about the trends you’re seeing with M&A within the retail space?
Jeff: It’s exciting to be in the retail industry. In the last 12 months, we have seen over $100 billion of activity in acquisition activity. This is significantly more than the previous year. This doesn’t just impact the specific client or prospect going through the M&A deal, it impacts the retail industry as a whole. There’s a trickle-down effect with deals of this magnitude.
Retail companies are going through M&A deals for a multitude of reasons. Some companies are looking to expand into different international markets, increase their market share, expand their brick and mortar presence, or reduce some internal redundancies. Regardless of the reason, we have resources in place to help and assist with future growth throughout the transit.
Question: From a background screening perspective, how do you think we are best supporting our retail clients as they go through big mergers and acquisitions?
Jeff: There are many ways that Sterling helps our clients through the M&A process. One of the first logical steps we recommend taking is to run a due diligence investigation. This ensures that the company that you’re about to go into business with is really who they claim they are. For example, someone’s business details might look good on a spreadsheet, so you may think that this transaction is beneficial, but what else is going on with that company?
Due diligence investigations give a larger perspective into your business dealings. An example I like to give is that a few years ago, I was onsite with a client, and we were talking about diligence investigations. They were a new client and didn’t know that this type of investigation existed.
As we described the types of information a due diligence investigation can uncover before a deal takes place, the color drained out of their face. Our client explained they had acquired a company that, on the surface, looked like a great deal. Afterward, they came to learn that the acquired company was actually tied to a shady zoo overseas involved in poor treatment of animals.
Due diligence investigations are used to help mitigate a company’s risk when engaging with a firm or person who may have underlying reputational issue. To this end, due diligence can provide your business with additional context about how that person or company may behave or take action in the future. Through due diligence investigations, employers and institutions can take a deeper look into many different aspects of a person or company’s background.
In this example, we would have found information about the zoo if we had been contacted and asked to run a due diligence investigation. Sterling has a team of over 50 experienced investigators who run investigations in over 240+ countries and territories.
Question: Are there any other types of background checks you would recommend running specific to an M&A deal?
Jeff: Due diligence investigation is the process of collecting and analyzing information in order to determine the risks associated with entering into a business partnership, an investment/loan, or any type of business deal.
Another type of investigation you would want to run is an Executive Investigation. These investigations include analysis coordinated and conducted by investigators in order to identify and highlight discrepancies or inconsistencies with regard to employment, educational, and licensing credentials. Investigators also dig deeper into specific findings to uncover additional, sometimes undisclosed, information.
For example, your organization might need new board members, or there might be some C-suite changes. Those are people that are steering the entire future of your company, and it’s worth investing in making sure that they’re representative of your company. We have an entire team running executive investigations that does a deep-dive into not only the candidate-supplied resume and information, but also the information uncovered while conducting research in relevant jurisdictions and across the internet.
Question: How does our client success team support our clients during mergers and acquisitions?
Jeff: The first step in M&A would be to leverage diligence and executive investigations, and then from there partnering with our customer support team and our implementation team.
Through these types of business deals, there’s a chance to hit the reset button. That’s really where our client success team shines. They get involved immediately on deals, offering benchmarking recommendations, and become the liaison with the implementation and the integration teams, bringing everything together in an efficient way.
Question: Can you explain what you mean by benchmarking?
Jeff: Benchmarking is an invaluable part of this relationship. We start with the ideal end state and then we work backwards. For example, we ask questions on how we get the integration set up and access rights for users, or even the hierarchy of accounts.
There’s a lot more that goes into these types of deals behind the scenes. How do you want to roll the program out? Maybe it’s regional, maybe it’s on an individual location, maybe only certain users can access information on aspects of a consumer report. Do you only want people to work on random drug testing programs or DOT programs? There’s a lot of features and functionality on offer. We want to lay out all those options and then get the project plan in place, execute, and work backwards to make sure that you’re hitting your go-live date as quickly as possible, without any errors.
The work we do impacts a lot of different departments on both sides of that M&A. The sooner we can be looped into the developing deal, the better we can help assist.
I think that the change management approach that we take gives clients a lot of assurance that they are not in this alone. Sterling has successfully done this many times with clients in similar industries to yours. Our client success team ultimately tries to get their program at an even better spot than they were before they started the M&A activity.
Question: Are there any other outlying benefits for an organization to bring in Sterling during this type of an M&A deal?
Jeff: There are going to be differences between the two companies, or maybe more than two companies coming together between what they’re currently doing and what they want to be doing in the future. Sometimes we are the tie-breaker in that regard because we have not only an existing clients program that we can factor in, but we can also utilize the benchmarking of every retail client we work with.
We can show you how similar companies in your industry have gone about this process from a cost and turnaround time standpoint.
Question: Is there anything new or anything else that’s new or innovative that we’re doing in the retail industry? And then specifically within background screening?
Jeff: Many retailers are looking to enter new global markets. As a global leader, Sterling is able to run international background checks in 240+ countries and territories in 35 languages. To support this influx of global screening, Sterling acquired Socrates, an industry leader in screening in LATAM. As a result, we can now expand our regional expertise in Latin America.
We also hear lots of questions in the retail industry about oral drug testing of both instant kits and lab-based oral kits. Companies are now rethinking drug testing programs as a result of COVID. They’re looking for alternative ways of testing to get cheaper and faster results.
Continuous monitoring and post-employment programs are also a growing retail trend. We have a lot of retailers that have driving positions and who conduct MVR monitoring in addition to criminal monitoring as a result of employees entering into customers’ homes.
Bringing your background screening provider into an M&A deal can make all the difference in mitigating reputational risk, as well as revamping your hiring process to enhance the candidate experience. The right approach to background screening in M&A details can strengthen your hiring process and make a strong impression on candidates. If you’d like to speak to someone about retail industry background checks, you can contact us here.
Sterling is not a law firm. This publication is for informational purposes only and nothing contained in it should be construed as legal advice. We expressly disclaim any warranty or responsibility for damages arising out this information. We encourage you to consult with legal counsel regarding your specific needs. We do not undertake any duty to update previously posted materials.