Principal Financial Group has agreed to buy Wells Fargo’s Institutional Retirement & Trust (IRT) arm in a $1.2bn deal.

The Wells Fargo business has presence in the US, Philippines and India and administered assets worth $827bn at the end of December 2018.

Under the agreement, Principal will acquire Wells Fargo’s defined contribution, defined benefit, executive deferred compensation, employee stock ownership plans, institutional trust and custody and institutional asset advisory businesses.

The acquisition is expected to double the size of Principal’s retirement business in the US and increase its reach with mid-sized employers.

Together, Principal and the Wells Fargo unit will have a client base of 7.5 million.

Principal will pay for the acquisition using cash and senior debt funding.

The deal is expected to close in the third quarter of this year, subject to regulatory nod.

Principal chairman, president and CEO Dan Houston said: “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.”

The deal also includes an earn-out of up to $150m.

This payment would be dependent on “better than expected revenue retention” and made two years after deal completion.

Principal expects the transaction to be accretive to net income next year.

Wells Fargo Wealth & Investment Management head Jon Weiss said: “The scale derived from a combination of IRT and the Principal Financial Group will benefit clients, plan participants, and team members.

“At the same time this sale reflects Wells Fargo’s strategy to focus our resources on areas where we can grow and maximise opportunities within wealth, brokerage and asset management.”