▼ Summary
– Gusto acquired Guideline for approximately $600 million, though the exact cash/stock breakdown and deal terms weren’t disclosed.
– Guideline’s acquisition price was below its 2021 $1.15 billion valuation, but early investors are expected to realize returns.
– Guideline provides 401(k) plans to small/medium businesses using a flat per-employee fee model and had $140 million ARR as of January.
– Gusto plans to sell Guideline’s accounts with rival payroll providers, with proceeds shared among shareholders to potentially increase returns.
– Guideline has been profitable for over a year but faces competition from rivals like Human Interest, which is growing rapidly.
In a significant move within the HR and payroll technology sector, Gusto has finalized its acquisition of Guideline, a specialist in retirement plan services for small and medium-sized businesses. The transaction, valued at roughly $600 million, marks a strategic expansion for Gusto as it integrates Guideline’s 401(k) management capabilities directly into its platform.
Although the precise breakdown between cash and stock remains undisclosed, sources close to the negotiations confirmed the approximate purchase price. Guideline, which previously reached a $1.15 billion valuation during its 2021 Series D funding round, has secured a total of $340 million in venture capital since its founding in 2015. While the acquisition price falls short of its peak private valuation, early investors including Felicis, Tiger Global, and NEA are positioned to see positive returns. General Atlantic, the lead investor in the Series D round, is also expected to realize a modest profit.
Founded by Kevin Busque, a co-founder of TaskRabbit, Guideline has distinguished itself by simplifying 401(k) setup and administration for smaller employers. The company employs a straightforward pricing model, charging a fixed fee per employee rather than taking a percentage of managed assets. As of January, Guideline reported annualized recurring revenue of $140 million, reflecting strong and predictable subscription income.
Gusto, established in 2011 and currently valued at $9.3 billion, has collaborated with Guideline since 2015 to offer retirement plans to its own customer base. However, Guideline also maintains partnerships with several competing payroll providers, including ADP, Intuit, Paylocity, TriNet, and Rippling. As part of the acquisition strategy, Gusto intends to divest Guideline’s customer accounts linked to these rival payroll firms. Proceeds from these sales will be distributed between Gusto and Guideline shareholders, potentially enhancing investor returns further. Gusto has not publicly commented on the financial terms or its specific divestiture plans.
A spokesperson for Guideline described the reported $600 million figure as inaccurate but did not provide an alternative amount. The spokesperson also stated that Guideline has no intention of terminating relationships with any existing clients as a result of the sale.
The decision to sell comes at a time when Guideline has been profitable for more than a year. Still, the company operates in a competitive landscape, facing off against rivals like Human Interest. Backed by SoftBank and Baillie Gifford, Human Interest reported 70% growth last year and anticipates reaching profitability by year-end. According to reports, Human Interest is currently in discussions to raise $200 million at a $3 billion valuation, which would double its worth from the previous year. The company’s CEO, Jeff Schneble, declined to comment on these fundraising efforts.
(Source: TechCrunch)
