City of London Group announced on Friday that it has conditionally agreed the acquisition of Milton Homes, and a proposed £11m equity fundraising.
The AIM-traded company proposed to acquire the entire issued share capital of Milton Homes - a provider of equity release products for residential property - for consideration of £20.2m.
That consideration was "approximately equal" to net tangible assets, and the vendor would be DV4 - a fund advised by specialist real estate investment advisory company Delancey.
COLG said the consideration for the acquisition will comprise £13.2m in new ordinary shares
in in itself, and £7m in cash.
The company also proposed to raise £11m through an equity fundraising, comprising £7m through non-preemptive subscriptions and £4m through a fully underwritten open offer, both at a price of 90p per share/
MBIL agreed to subscribe for £5.8m in new ordinary shares, the board said, and to underwrite the open offer in full in respect of any entitlements not taken up.
In addition, unconnected investors reportedly agreed to subscribe for £1.2m in new ordinary shares, and Peel Hunt may also subscribe in lieu of part of MBIL's subscription to ensure that a free float of 10% is achieved following completion of the acquisition.
"The board believes that the acquisition of Milton Homes presents the company and its shareholders with an attractive opportunity to acquire a business in the equity release sector," said COLG chairman Paul Milner.
"Building on the potential that exists within CAML, Milton Homes will enable the group to develop a broad-based financing business and moreover the additional balance sheet strength will give access to a wider range of funding lines.
"We have in place a strong and experienced board and senior management team ideally placed to drive investor value."
Following completion of the acquisition, the subscriptions and the open offer, DV4 and MBIL would hold 51% and up to 39% respectively of the enlarged issued ordinary share capital of COLG, assuming no take-up by other shareholders in the open offer.
The company said it was proposing to change its status from an investing company for the purposes of the AIM Rules to a trading company.
It also proposed to amend its articles of association and to reorganise its share capital, to allow the subscriptions and open offer to proceed and to consolidate its ordinary shares on a 20-for-1 basis.
The acquisition would constitute a reverse takeover under AIM Rules, and as such it remained conditional on the approval of the company's shareholders in a general meeting.
In accordance with the AIM Rules, the ordinary shares in the company were suspended from trading with effect from 07300 BST, until an admission document is published in connection with the proposals.
"This acquisition is very positive for all of the parties," said Milton Homes chairman Colin Wagman.
"Milton Homes now has the opportunity to advance its business prospects with access to a wider pool of capital and to provide it with more profile to enable it to expand its equity release products."
Wagman said that following the transaction, existing shareholders would retain a "substantial involvement" in the future of the business.
"We are delighted that DV4 will continue as the majority shareholder."