Sources: Gusto paid $600M to acquire Guideline, plans to divest customers linked to rivals

Last month, Gusto, a payroll and HR software company, announced that it agreed to acquire Guideline, a startup offering retirement plans to small and medium businesses.  

The terms of the deal weren’t disclosed, but Gusto paid approximately $600 million, according to a source familiar with the deal, although TechCrunch could not confirm how much of this was cash and how much was stock. 

Guideline was last valued at $1.15 billion in 2021 when it raised a $200 million Series D funding round. Since its founding in 2015, it has raised a total of $340 million. While the acquisition price is below the startup’s private valuation, the company’s early-stage investors, including Felicis, Tiger Global, and NEA, will likely realize a return. General Atlantic, which led the company’s Series D, is expected to earn a small profit on its investment, too, sources say. 

Founded by former TaskRabbit co-founder Kevin Busque (pictured above), Guideline helps small and medium-sized businesses easily set up and manage 401(k) plans. It charges a flat, per-employee fee instead of the traditional model of charging a percentage of assets under management. CNBC reported that Guideline’s annualized recurring revenue (ARR), a metric that measures predictable yearly income from subscriptions, was $140 million as of this past January. 

Gusto, which was founded in 2011 and is valued at $9.3 billion, has been offering 401(k) retirement plans to its customers through a partnership with Guideline since 2015. But Guideline’s relationship with Gusto isn’t exclusive. Customers can also set up Guideline retirement plans through other payroll providers like ADP, Intuit, Paylocity, TriNet, and Rippling. 

According to three sources familiar with the transaction, Gusto is looking to sell off Guideline’s accounts associated with rival payroll companies. The proceeds from those sales will be shared among Gusto and Guideline shareholders, said one person familiar with the deal, potentially increasing returns for investors even more. 

Gusto declined to comment on the deal price and its divestment plans.  

Guideline’s spokesperson characterized the $600 million price tag as incorrect without offering more information, and said the company has no plans to part ways with any of its customers as part of its sale to Gusto. 

While this appears to be a profitable transaction for Guideline’s shareholders, the company’s rationale for selling remains unclear. The company has been profitable for over a year, the company’s spokesperson confirmed. However, it faces plenty of competition, such as from Human Interest, its closest rival, which is backed by SoftBank and Baillie Gifford. Human Interest grew 70% last year and is expected to be profitable by the end of the year, the company’s co-founder and CEO Jeff Schneble told TechCrunch.  Human Interest is in talks to raise $200 million at a $3 billion valuation, doubling its valuation from a year ago, The Information reported. Schneble declined to comment on the company’s fundraising plans.