🔦Background Check Services

Welcome to this week’s edition of Sector Spotlight!

Every Tuesday we highlight an under the radar and often underappreciated industry. This week we take a closer look at the Background Check Services industry.

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-Harry & Carter

We identified 247 companies in this industry. These companies have verified contact, location, and financial data. We limit the amount of downloadable excel company lists to the first 10 searchers, so we don’t overwhelm the sellers.

Our full list of verified, off-market companies: Excel File 

*Revenue between $1.5M - $20M

Background Check Services

• Size of Industry: $4.50B

• Industry Projected Growth: 2.2% (CAGR)

• Profit Margin: 7.0%

Harry & Carter’s thoughts:

Most readers have interacted with background check services in some capacity — likely when applying for a new job. These companies offer various services that investigate individuals personal, professional, and criminal backgrounds. These tasks range from verifying tenants for landlords to granting security clearances for employers. Some specialize in specific services, like drug testing or credit checks.

A handful of companies dominate a significant portion of the market share. First Advantage, Hireright, and Sterling Check have established global reputations for delivering high-quality services and are quickly buying up smaller background check companies, providing attractive exit opportunities. As the industry continues to undergo a period of consolidation, profit margins are expected to expand. This is particularly true for the larger players who have been able to further bolster their market position through investments in cutting-edge technology.

As consumers prioritize data security, they are increasingly inclined to choose background check providers with strong reputations and proven data protection methods. Stringent hiring regulations further shape the landscape for background check providers. Factors such as employee rights, concerns regarding erroneous reporting, and safeguarding consumer data all contribute to the regulatory framework within which these providers operate.

Background checks aren't going away anytime soon, but the way these companies gather data will continue to evolve with new technology.

Industry Breakdown

Criminal Background Checks: These checks involve searching databases for records of criminal convictions, arrests, or other criminal activities at the local, state, or federal level.

Credit History Checks: Background check companies may provide credit reports that detail an individual's credit history, including credit accounts, payment history, outstanding debts, bankruptcies, and other financial information.

Employment & Education Verification: Verification of employment history, including past employers, job titles, dates of employment, and salary information, helps employers confirm the accuracy of a candidate's resume or job application.

Professional License Verification: For certain professions that require licensure, such as doctors, lawyers, or real estate agents, background check companies can verify the validity and status of professional licenses.

Drug Testing: Some background check companies offer drug testing services to screen individuals for the presence of drugs or alcohol in their system, typically as part of pre-employment screening or ongoing workplace testing programs.

What We’re Watching

Background check providers will face ongoing regulatory scrutiny and oversight due to growing public concerns about government surveillance and cyber security breaches. Heightened security requirements will create barriers for smaller companies unable to implement robust data protection measures, leading to consolidation within the industry.

Automation will continue to streamline data collection processes, leading to a reduction in employment opportunities within the industry but contributing to profit growth for providers. The shift of police and court records to online platforms has enabled continuous real-time background screenings, allowing companies to promptly identify internal threats as they arise.

The adoption of continuous background screenings will sustain demand from high-risk industries like transportation, healthcare, and finance, regardless of fluctuations in hiring activity. As we mentioned earlier, the demand for background check companies is not going anywhere, however, staying in front of technological changes will be essential in ensuring revenue remains stable.

Questions to Ask Owners

⚫️ What is the average length of your contracts with customers?
⚫️ Do you currently automate any processes?
⚫️ How do you ensure your data is secure?
⚫️ How often do you invest in new equipment/software?
⚫️ How do you keep up with government regulations?