A shakeup in the defined contribution 401k plan space as Principal Financial Group said it will acquire Wells Fargo’s institutional retirement business.
Principal will gain 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 what it says is a combined 7.5 million U.S. retirement customers.
“Retirement is at the heart of our business and core to our future,” Dan Houston, chairman, president and CEO of Principal, said in a statement. “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.”
Principal also said it will double the size of its U.S. retirement business by the number of total recordkeeping assets, “while bringing on attractive institutional trust and custody offerings for the non-retirement market.
In addition to increased scale, Principal will gain “a strong foothold with mid-sized employers as more than two-thirds of Wells Fargo’s institutional retirement assets are in plans ranging from $10 million to $1 billion.”
“We are deeply committed to helping people have enough, save enough and protect enough in retirement,” Renee Schaaf, president of Retirement and Income Solutions at Principal, added. “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 December 31, Wells Fargo retirement businesses had $827 billion in assets under administration served by approximately 2,500 employees in locations across the U.S., Philippines and India. There are four employee centers in Charlotte, N.C.; Minneapolis/Roseville, Minn.; Waco, Texas; and Manila, Philippines.
Transaction details
Under the agreement, 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.
The acquisition is expected to be accretive to net income and non-GAAP operating earnings per diluted share in 2020 and will be financed with cash and senior debt financing.
The transaction will be reviewed by U.S. regulatory authorities prior to closing, which is anticipated in the third quarter of 2019.
Lazard acted as the financial advisor on the transaction to Principal. Debevoise & Plimpton LLP acted as legal counsel to Principal on the acquisition.