G4S said it would pay £1.53bn to ISS, half in cash and half in shares, and would raise 1.88 billion pounds, net of expenses, to fund the deal through a rights issue. It will also assume ISS's debt of 3.67 billion pounds.
"We believe this acquisition will transform our business, significantly accelerate the delivery of our solutions strategy and create substantial value for shareholders," said G4S Chief Executive Nick Buckles.
ISS, owned by Swedish private equity investor EQT and Goldman Sachs Capital Partners since 2007, pulled the plug on a planned $2.8bn (£1.7bn) float in March due to market turmoil.
The acquisition will create a business with combined revenue of £15.9bn, based on the companies' 2010 results.
G4S said it would provide significant growth opportunities and an estimated 100 million pounds of annual pretax cost savings by 2014.
It added that the deal would deliver double-digit post-tax growth in return on investment capital and double-digit earnings per share accretion within three years.
G4S said the deal would enable it to maintain its current BBB credit rating.
Under the terms of the rights issue, shareholders can buy seven shares for each six they already hold at a price of 122 pence per share.