Workforce management provider HireRight Holdings is going public this week on the New York Stock Exchange (NYSE), looking to raise $500m (€431.4m, £363.6m).
HireRight is one of several employee-screening companies that have entered the public markets this year as the labour market rebounds from the Covid-19 pandemic and employers have begun to ramp up hiring.
In this article, we provide an overview of the business to help you better navigate the upcoming initial public offering (IPO).
HireRight provides technology-led workforce risk management
HireRight was first formed in 1990 to help employers screen potential employees, and the company launched its first internet-based background screening service in 1997. The company provides background screening checks, identification, verification and monitoring, as well as health- and drug-screening services.
This upcoming listing is not the first time the firm has traded on the stock market. HireRight filed for a US IPO in 2007 on the NASDAQ Global Market using the ticker HIRE. In 2008, HireRight launched the world’s first Web 2.0 screening-management application.
In August 2008, HireRight was acquired by Falls Church, Virginia-based security-screening firm US Investigations Services (USIS) for $249m, according to the Washington Business Journal. In 2015, Altegrity, the holding company that owned USIS, HireRight and Explore Information Services, filed for Chapter 11 restructuring after losing its contract to provide security clearances to the US government.
In July 2018, HireRight GIS Group Holdings LLC was formed when HireRight merged with General Information Services (GIS), an integrated background screening services provider, to scale up and diversify its customer base. The two groups of companies own a number of subsidiaries that operate within the US and internationally as a unified company, predominantly under the HireRight brand.
On 15 October, HireRight GIS Group Holdings was renamed HireRight Holdings Corporation. The company has expanded globally and now has offices in London (UK), Poland, Estonia, Dubai, Australia, Philippines, Japan, India, Hong Kong, Singapore, Canada and Mexico in addition to several offices across the continental United States, including its headquarters in Nashville, Tennessee. These serve HireRight’s more than 40,000 customers around the world.
HireRight provides its services via a unified global software and data platform that integrates into its customers’ human capital management [HCM] systems to increase the efficiency of their hiring and onboarding processes. In 2020, HireRight reported screening over 20 million job applicants, employees and contractors.
HireRight has stated in the prospectus it filed with the US Securities and Exchange Commission (SEC) that:
It added: “Our platform also seamlessly integrates through the HireRight Connect application programming interface (“API”) with nearly all third-party HCM systems, including Workday, Service Now, Oracle and SAP, providing convenience and flexibility for our customers. Additionally, backgroundchecks.com serves as our system for customers that prefer a self-service solution, including many of our SMB [small- to medium-size businesses] customers. All of these systems leverage our extensive access and connectivity to employee and job applicant data.”
HireRight has several proprietary databases, including criminal records databases and databases specific to the transportation, retail and gig-economy markets. The company is investing in its platform to provide further insights to its customers, launch new services and further automate its service delivery.
The HighRight platform incorporates several systems in its platform, as below:
HireRight Screening Manager: A cloud-enabled system for customers to request screening reports
HireRight Applicant Center: The company’s secure applicant system, which consolidates communication with the potential employees and enables them to submit information for the screening process
HireRight Connect: The company’s application programming interface (API) system, which connects to customers’ human resources (HR) systems
backgroundchecks.com: The company’s self-service e-commerce system, which provides pre-packaged reports suitable for smaller businesses.
HireRight Holdings’ revenue totalled $326.5m for the six months ended 30 June 2021, up from $259.4m in the first half of last year. Its revenue totalled $540.2m in 2020, down from $647.6m in 2019.
The company cut its first-half net loss to $15.6m this year, from $45.9m in the first six months of 2020. The net loss for the full year in 2020 increased to $92.1m in 2020 from $70.5m in 2019.
The global background-screening services market is forecast to reach $5.1bn in total revenue this year, according to data from Allied Market Research cited in the SEC filing. The market is projected to expand at a compound annual growth rate (CAGR) of 9% to reach $7.6bn by 2026.
HireRight anticipates that several key drivers could support the growth of its addressable market, including the rapid evolution of the global workforce, faster hiring processes, increased regulatory scrutiny and an increased focus on compliance. The company expects that these trends could increase demand for outsourced background-screening services as well as an increased adoption of ongoing employee monitoring.
The company sees the opportunity to accelerate its growth strategy via mergers and acquisitions. Since its 2018 merger with GIS, the company acquired Great Lakes, US-based BackTrack in 2018, Japan’s J-SCREEN in 2019 and Australia’s PeopleCheck in 2019. HireRight’s approach to acquisitions focuses on acquiring new capabilities to expand and enhance its services, expand its industrial and geographic market presence, and enhance its efficiency through consolidation.
The main long-term risk to the company’s growth is the overall business cycle. During periods of economic contraction, companies reduce their hiring activity, limiting demand for employee-screening services. For the short term, the global economic recovery from the Covid-19 pandemic is driving new employee hiring in a tight labour market as employers manage pent-up demand following lockdowns.
HireRight IPO: what you need to know about the listing
The HireRight IPO date is scheduled for 29 October, according to the NASDAQ’s listing schedule. For the IPO, Goldman Sachs and Credit Suisse are among the leading underwriters, and the company will then be renamed to HireRight Holdings Company. The HireRight Holdings stock will trade on the NYSE under the ticker symbol HRT.
The listing will offer 22.2 million shares at between $21 and $24 per share, for a HireRight IPO valuation of between $466.7m and $533.3m. This would value the company at more than $2bn.
General Atlantic invested in the holding company that owned the GIS Group in March 2017. When the company was reorganised through its merger with GIS in July 2018, it was funded through additional equity investment from General Atlantic, Stone Capital and debt financing, which gave General Atlantic a 52% stake and Stone Point a 29% holding, with 19% owned by GIS Group founders Ray and Jeanne Conrad.
Following the offering, investment funds managed by growth equity firm General Atlantic will own a 37.4% stake in HireRight, or 35.9% if the underwriters exercise their full option to buy additional shares in the IPO. Investment funds managed by Stone Point Capital will hold a 20.8% stake, or 20% if the underwriters exercise the full option.
The company estimates it could receive net proceeds of $500m, or $537.9m if the underwriters exercise their full option, based on the midpoint of the HireRight stock price range.
HireRight Holdings expects to use around $400m of the net proceeds for repayment of indebtedness, consisting of $215m in debt due in 2025 and $185m in 2026, according to the SEC filing. It also intends to use $5.3m for interest payments. The company plans to use the rest of the proceeds to implement its growth strategies and continue to invest in its operating systems and technologies.
Please note that this article does not constitute financial or investment advice. Before investing in any company, you must always do your own research, and remember that your decision should be based on your attitude to risk, your expertise in this market and the spread of your portfolio. Never invest more than you can afford to lose.