Seattle-based compensation data and technology company PayScale is merging with Payfactors, a compensation data management company based in the Boston area, joining forces in a new effort to capitalize on growing demand from corporate leaders grappling with issues of employee pay equity and remote work.
“They’ve been a great competitor,” PayScale CEO Scott Torrey said, referring to Payfactors in an interview. “Competitors make you better and stronger. But at some point, you’d much rather join forces than continue to battle it out.”
- The combined company will be majority-owned by private equity firm Francisco Partners, based in San Francisco, which has been PayScale’s majority owner since April 2019. The companies together have more than 600 employees and 10,000 customers, Torrey said.
- The company will be based in Seattle and retain the PayScale name.
- Torrey, an SAP Concur veteran who has been PayScale’s CEO since August 2019, will remain in that role.
- Payfactors CEO Jeff Laliberte will be chief strategy officer, and join the PayScale board.
- Insight Partners, a New York-based venture capital firm that backed Payfactors, will roll 100% of its equity into the combined company in addition to making a new investment of undisclosed size. Ryan Hinkle and David Spiro of Insight Partners will join an expanded PayScale board of directors.
- The deal was reached late last year, but not announced at the time by the privately held companies. A filing to complete the transaction was made confidentially on Dec. 21, and the Department of Justice completed an informal review on Feb. 22, Torrey said. The transaction is set to close today.
Combined data from the companies will reach a “massive scale,” Torrey said, describing it as “the single largest data set that is the source of truth around employment in the United States,” including compensation data for about 30% of the U.S. working population.
The company’s goal is to reach $200 million in revenue by 2022, which would represent 20% growth, Torrey said, calling the Payfactors merger “a massive step” toward that goal. PayScale declined to disclose terms of the transaction or other details of its financial results.
PayScale had raised more than $71 million in funding prior to the deal, according to venture capital database PitchBook. It was valued at $325 million when Francisco Partners made its majority investment in 2019. Total prior funding for Payfactors was not disclosed.
Laliberte, the Payfactors CEO, said in a news release that his company saw an “obvious and natural fit” with PayScale.
The combination comes amid major changes and new scrutiny of compensation practices at companies across the country and around the world. Companies making compensation decisions increasingly require new types of information amid the global movement for pay equity, and the rise of remote work, Torrey said.
“That creates a whole set of dynamics that the old data and the old services that they were using may not answer,” Torrey said. “So in the broad context, you have two companies that are solving a super-important problem that the C-suite is thinking about. And so now is the perfect time for us to come together.”
Combined, the companies say their customer base includes more than half of Fortune 500 companies, representing more than 35 million employees. Both companies make money by selling their technology to corporate customers through a software-as-a-service model. PayScale’s customers include companies such as Allstate, United Health Group, Petco, GE, Perry Ellis, and SAP.
“For now, we are operating our business as usual while we take some time to do a deeper product, organizational, and strategy assessment that will help us chart our path forward as one company,” write Torrey and Laliberte in a joint letter to customers. “We are excited for what possibilities lay ahead, particularly in terms of product enhancements, but we want to take some time to be thoughtful to minimize disruption to you and our customers in the process.
The combination is the latest twist in an eventful two years for PayScale. The company employed about 450 people at the time of the Francisco Partners investment in April 2019. Its longtime CEO, Mike Metzger, stepped down in August of 2019. The company declined to address reports of job cuts in subsequent months.
PayScale filed suit in December 2019 in King County Superior Court against Seattle-based Syndio Solutions and five former PayScale executives and employees who left to work for the competing pay equity analytics company over alleged violations of their PayScale employment agreements. The dispute has since been resolved.
As of January, PayScale’s total employee base was about 320, including 200 people in Seattle, the company said at the time.
In recent months, PayScale has given up its Seattle office lease, with employees working remotely for the time being during the pandemic. Torrey said previously that PayScale plans to ultimately occupy what he described as a more collaborative workspace in the Seattle area that supports hybrid work scenarios.
Torrey acknowledged that there will be some overlap in roles at PayScale and Payfactors, resulting in some natural “transitions,” but said he also expects the combination of the companies to create jobs, as well.
“This is entirely tied to our strategy for growth,” he said.
Insight Ventures, the Payfactors backer turned PayScale investor, also has ties to the Seattle region through investments in e-signature giant DocuSign, which was founded in Seattle and maintains a large engineering operation in the city; and Smartsheet, the Bellevue, Wash.-based work collaboration technology company.
[Editor’s Note: The headquarters of Francisco Partners has been corrected since publication.]