First Armerica aid Aiming to Buy Security Co.

November 22, 2002

Welsh, Carson, Anderson & Stowe Said Negotiating to Buy U.S. Investigations Services for $1B

By Mike Crissey
Associated Press Writer

PITTSBURGH (AP) -- One of the nation's largest employee-screening companies -- known for its unusual headquarters in a former limestone mine 220 feet underground in western Pennsylvania -- has become the target of a $1 billion buyout, a person close to the negotiations said.

Buyout firm Welsh, Carson, Anderson & Stowe is negotiating to buy Annandale, Pa.-based U.S. Investigations Services, which was part of the federal Office of Personnel Services until 1996.

The companies are scheduled to meet Friday to work out details of the deal for employee-owned U.S. Investigations, the source told The Associated Press Thursday on condition of anonymity.

U.S. Investigations Services, which has about 3,600 employees worldwide, does background checks, drug- and alcohol-testing and provides security for government and corporations. It handles more than 1.2 million cases a year, according to the company's Web site.

A spokesman for New York-based Welsh, Carson, Anderson & Stowe declined comment on the proposed deal, which was first reported by The Wall Street Journal.

Officials from U.S. Investigations Services did not return telephone calls seeking comment Thursday. A spokeswoman for private-equity firm the Carlyle Group, which owns a 30 percent stake in the Pennsylvania company, said she could not comment on the deal.

The underground site of U.S. Investigations Services' headquarters, about 45 miles north of Pittsburgh, was used by the federal government to store sensitive employee records.

Since its 1996 spin-off, U.S. Investigations has bought other employee-screening companies, including drug and alcohol testing company United Labs and security services company USATREX International in 1999; record research company Due Diligence last year; and pre-employment screening business Official Information Company in September.

The industry appears poised to grow with federal legislation requiring background checks for workers at seaports and changes in airport security. And businesses, from restaurants to Fortune 500 companies, are increasingly requiring background checks.

Analysts said the proposed deal may also signal a new round of consolidation in the highly fragmented employee-screening industry.

The largest companies are ChoicePoint Inc., of Alpharetta, Ga.; First American Corp., of Santa Ana, Calif., and Kroll Inc., of New York City, but none of them has more than a 15 percent market share, analysts said.

"There are a lot of different people racing to the same finish lines with different data," said Brad Eichler, an analyst with investment bank Stephens Inc. in Little Rock, Ark.

"With consolidation, as a seller of that data you are in a much better situation. You can tell businesses, 'You don't have to fool around with x-number of mom-and-pops, you can just come to us.'"

U.S. Investigations Services:

Welsh, Carson, Anderson & Stowe:

The Carlyle Group:

Copyright: Inman News Service

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