Principal to Expand ESOP Business Via Acquisition from Ascensus

Principal Financial Group announced Thursday an agreement to acquire Ascensus’ employee stock ownership plan business, further solidifying its leading position in the marketplace.

When the deal closes, which is expected by the end of the second quarter, Principal will add 800 ESOP plans and more than 165,000 participants. That will bring the retirement solutions provider’s total market representation to more than 2,000 ESOP plans and about 765,000 participants, according to the announcement. The firms did not disclose terms.

The deal between Principal and Ascensus will merge two of the country’s largest ESOP providers by assets, according to the 2023 PLANSPONSOR DC Benchmarking Survey; PLANSPONSOR, like PLANADVISER, is owned by ISS STOXX. Blue Ridge ESOP Associates currently administers 1,600 plans, according to the firm, in part from growth after a 2022 acquisition of Crowe LLP’s ESOP business.”

Principal noted a growing market for ESOPs by companies in recent years, in part due to the tight labor market, for the acquisition. In research conducted by the National Center for Employee Ownership, a nonprofit membership association that supports the space, the group noted that employees with ESOP plans tend to believe they have an advantage in recruiting and retaining talent—with about 79% of such employers saying they do much better or somewhat better than competitors in recruiting and retainment. 

“Hundreds of new ESOPs are formed every year, and companies that already have ESOPs continue to outperform their markets— one reason for that growth is the bench depth of the service providers in the field,” says Loren Rodgers, executive director of NCEO. “The acquisition of Ascensus’s ESOP business by the Principal Financial Group is a sign of the field’s health—I see it as an investment in the resources available to ESOP companies, and I’m delighted that there are still a dozen administration firms that have large ESOP client bases and deep expertise.”

Principal also cited additional products and tools as impetus for the purchase. That will include adding Ascensus’ ESOP economics consulting group and its Telescope software, which provides clients with a forecast of ESOP repurchase obligations and alternative options, according to Ascensus’ website.

Andrew Matos

“The acquisition positions us to offer greater value, enhanced services, and stronger products to our ESOP clients, and the integration of strong talent from Ascensus will be essential to support the growth of our ESOP business,” Andrew Matos, head of stock plan services for Retirement and Income Solutions at Principal, said in a statement.

For Ascensus, the sale happens just after it has been making acquisitions in other areas under new President Nick Good.

In April, the tax-advantaged solutions provider acquired Vanguard’s individual 401(k), Multiple Participant SEP and SIMPLE IRA Plans divisions. That followed the March acquisition of Mutual of Omaha’s 401(k) recordkeeping business, which Ascensus had been operating as a vendor, but then took over to manage the more than 2,300 retirement plans.

Principal’s acquisition also comes as the DOL reportedly nears a proposal on adequate consideration rules for ESOPs in coming months. The ESOP provider industry has been awaiting the proposal to help shape up a more public market for the appraisal of the shares in ESOP plans in part to protect from regulatory and litigation risk due to lack of benchmarking.  

“It appears ESOPs are having a moment,” says NCEO’s Rodgers. “I keep hearing encouraging words not only from federal agencies and from members of Congress, but especially from state governments actively seeking to encourage employee ownership. They’ve seen the benefits to their constituents when employees own a share in the company, and they’re also seeing that rooting business ownership in communities makes those communities more resilient.”

Update: Story updated with new information on ESOP market coverage.