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

In a significant move within the payroll and HR software sector, Gusto has announced its acquisition of Guideline, a startup that specializes in retirement solutions for small and medium-sized enterprises. Although the specifics of the deal remain under wraps, sources indicate that Gusto has paid around $600 million for the acquisition, which marks a notable investment despite being below Guideline’s previous valuation of $1.15 billion from 2021. Founded in 2015 by Kevin Busque, a former TaskRabbit co-founder, Guideline has successfully raised a total of $340 million over its lifetime, with its latest funding round contributing $200 million. This acquisition could yield returns for Guideline's early investors, including major players such as Felicis, Tiger Global, and NEA. General Atlantic, which led Guideline’s Series D funding, is also anticipated to gain a modest profit from its involvement. Gusto, valued at $9.3 billion, has partnered with Guideline to offer 401(k) plans since 2015, charging businesses a flat rate per employee rather than a percentage of managed assets. As of January, Guideline reported an annualized recurring revenue of $140 million from its subscription model. However, Gusto's acquisition comes with a twist, as sources reveal that the company intends to divest accounts tied to Guideline's competitors in the payroll market, including well-known firms like ADP and Intuit. This divestment strategy aims to enhance returns for both Gusto and Guideline shareholders, although Gusto has refrained from commenting on the acquisition price or its plans for account sales. In contrast, a spokesperson for Guideline has disputed the $600 million figure, asserting that the company has no intention of severing ties with its current clients as part of the transaction. While the deal appears financially beneficial for Guideline's shareholders, the motivations behind the sale remain somewhat ambiguous. Guideline has been profitable for over a year, yet it continues to face stiff competition from rivals like Human Interest, which has experienced rapid growth and is projected to become profitable soon. As the landscape of retirement plan providers evolves, the implications of this acquisition are likely to reverberate throughout the industry.