Last month, Gusto, a payroll and HR software company, announced it has agreed to acquire Guideline, a startup that provides retirement plans for small and medium businesses. While the official terms were not disclosed, a source familiar with the deal indicated the acquisition price was approximately six hundred million dollars. The exact breakdown of cash and stock components could not be confirmed.
Guideline was last valued at one point one five billion dollars in 2021 when it raised a two hundred million dollar Series D funding round. Since its founding in 2015, the company has raised a total of three hundred forty million dollars. Although the acquisition price is below the startup’s previous private valuation, early-stage investors such as Felicis, Tiger Global, and NEA are expected to realize a return. Sources also indicate that General Atlantic, which led the company’s Series D round, is expected to earn a small profit.
Guideline was founded by former TaskRabbit co-founder Kevin Busque. The company helps small and medium-sized businesses set up and manage 401(k) plans. It uses a business model that charges a flat, per-employee fee rather than the traditional method of taking a percentage of assets under management. According to a report, Guideline’s annualized recurring revenue was one hundred forty million dollars as of this past January.
Gusto, founded in 2011 and valued at nine point three billion dollars, has offered 401(k) plans to its customers through a partnership with Guideline since 2015. However, Guideline’s relationship with Gusto is not exclusive. Customers can also set up Guideline retirement plans through other payroll providers, including ADP, Intuit, Paylocity, TriNet, and Rippling.
According to three sources familiar with the transaction, Gusto plans to sell off Guideline’s accounts that are associated with rival payroll companies. The proceeds from these sales will be shared between Gusto and Guideline shareholders, potentially increasing investor returns even further. Gusto declined to comment on the deal price or its divestment plans.
A spokesperson for Guideline characterized the six hundred million dollar price tag as incorrect but did not provide further details. The spokesperson also stated the company has no plans to part ways with any of its customers as a result of the sale to Gusto.
While the sale appears profitable for Guideline’s shareholders, the company’s rationale for selling remains unclear. A company spokesperson confirmed Guideline has been profitable for over a year. The company faces significant competition from rivals like Human Interest, its closest competitor, which is backed by SoftBank and Baillie Gifford. Human Interest’s co-founder and CEO stated the company grew seventy percent last year and is expected to be profitable by the end of this year. It was also reported that Human Interest is in talks to raise two hundred million dollars at a three billion dollar valuation, which would double its valuation from a year ago. The company declined to comment on its fundraising plans.