Alvis, best known for the Scorpion and Stormer armoured tracked vehicles, is paying pounds 80m for the Swedish group Hagglunds, maker of the CV90 infantry fighting vehicle.
The CV90, a similar but more modern version of the GKN Warrior, will be the platform that Alvis will use to bid for a Ministry of Defence contract for up to 1,000 multi-role armoured vehicles. The contract is due to go out to tender in the next two years and could be worth pounds 1bn over the lifetime service of the vehicles.
The Hagglunds deal will create a group with an order book of pounds 550m to rank in terms of size alongside GKN and Vickers in the fighting vehicles industry.
Hagglunds has an order book worth pounds 400m - the bulk of which is accounted for by pounds 320m in outstanding orders from the Swedish and Norwegian governments for the CV90. Its other main product is the Bv 206 all-terrain carrier, world-wide sales of which now exceed 10,000. Alvis has pounds 150m orders in the UK and overseas.
Other potential markets for the CV90 include Switzerland, which has a requirement for 300 infantry fighting vehicles, and Asia.
Nicholas Prest, chairman and chief executive of Alvis, said the two groups were complementary in terms of product range, markets and technology. Alvis has customers in more than 40 countries, including South-east Asia, the Middle East and Latin America while Hagglunds has tended to concentrate more on Europe.
The acquisition will be part funded by a pounds 20m one-for-four rights issue with the balance funded from Alvis's cash resources and borrowings. Alvis has net cash of pounds 40m while Hagglunds has pounds 60m cash in its balance sheet.
Mr Prest said he expected the acquisition to be earnings enhancing in the first full-year. In the year ended last December, Hagglunds made a pre-tax profit of 143m Swedish kroner (pounds 11.7m) on sales of Kr1.26bn (pounds 104m).