Furniture giant DFS is set to unveil a deal to buy smaller rival Sofology


In June, DFS said its profits would be hit by weak trading (Source: Getty)

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.

Read more: Sofa giant DFS buys smaller rival Dwell to lure younger shoppers

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.

Read more: Sofa, not so good: DFS shares crash as it warns on profit