DFS is set to announce a takeover deal for Sofology this week, according to reports, after warning its profits would take a hit from a weakened trading environment in June.
The UK's top independent furniture retailer will soon announce a bid for its fast-growing rival in a deal said to be worth an initial £25m, Mark Kleinman at Sky News reported.
DFS' purchase of Sofology, which has 40 stores around the UK, follows a number of acquisitions including Dwell in 2014 and Sofa Workshop in 2013.
DFS, which returned to the stock market in March 2015, has a market capitalisation of more than £450m.
The new purchase may come as a surprise to analysts after it warned the market had weakened beyond its expectations less than two months ago.
In a June trading update, DFS said significant declines in store footfall led to a material reduction in customer orders.
The company is set to provide a further trading update next week.
Sofology reported its turnover jumped 39.5 per cent to £142.9m in 2015 while earnings before interest, tax, depreciation and amortisation were £3.8m.
A source told Sky the deal could be worth much more to Sofology's shareholders than the initial £25m purchase price, depending upon future performance.
DFS declined to comment. Sofology could not be reached for comment.