Principal Financial Group this morning announced a definitive agreement with Wells Fargo & Co. to acquire Wells Fargo’s Institutional Retirement & Trust business in a deal that will double the size of Principal’s retirement business.  

Des Moines-based Principal will assume ownership of Wells Fargo’s defined contribution, defined benefit, executive deferred compensation, employee stock ownership plans, institutional trust and custody and institutional asset advisory businesses and serve a combined 7.5 million U.S. retirement customers.

The purchase price is $1.2 billion. The agreement also includes an earnout of up to $150 million tied to better than expected revenue retention, payable two years post-closing.

“Retirement is at the heart of our business and core to our future,” Dan Houston, chairman, president and CEO of Principal, said in a press release. “This will be a powerful combination for customers, employees and shareholders as we solidify our place as a top-three leader in the U.S. retirement market. The acquisition will bring expanded capabilities, reach and scale; fueling our ability to compete, invest and grow to help more people to achieve their retirement outcomes.”

As Reuters reported, Wells Fargo has sought to trim its business ever since it came under regulatory scrutiny following a sales practice scandal. In 2018, the Federal Reserve imposed an unprecedented asset cap on Wells Fargo, citing “widespread consumer abuses and compliance breakdowns.” 

In an interview this morning with the Business Record, Houston said that Principal has conducted an extensive due diligence process with Wells Fargo’s retirement business over the past six months and that he is confident in the quality of the transaction. 

“That has proven to us that [Wells Fargo retirement] has a division of highly professional and dedicated employees,” he said. “There were no sales issues identified. We underwrite for culture and strategic fit, and it was like hand-in-glove. Financially we feel very good about it as well.” 

Through the acquisition, Principal will double the size of its U.S. retirement business by the number of total record-keeping assets, while bringing on attractive institutional trust and custody offerings for the nonretirement market. In addition to increased scale, Principal will gain a strong foothold with midsized employers as more than two-thirds of Wells Fargo’s institutional retirement assets are in plans ranging from $10 million to $1 billion.

Principal said it also expects to be well-positioned to deliver a broader set of solutions and capabilities to its customers, strengthen investments in digital technologies and automation, and recognize materially significant synergies and efficiencies.

“We are deeply committed to helping people have enough, save enough and protect enough in retirement,” said Renee Schaaf, president of Retirement and Income Solutions at Principal. “Together with the Wells Fargo Institutional Retirement & Trust business, our customers can expect a continued focus on delivering differentiated investment, income and financial wellness solutions that empower them to reach their retirement goals.”

As of Dec. 31, the respective Wells Fargo retirement businesses had $827 billion in assets under administration. The businesses have about 2,500 employees in locations across the U.S., Philippines and India. The major employee centers for those businesses are in Charlotte, N.C.; Minneapolis/Roseville, Minn.; Waco, Texas; and Manila, Philippines.

The transaction between Principal and Wells Fargo will be reviewed by U.S. regulatory authorities prior to closing, which is anticipated in the third quarter of 2019.