Affinity internet is paying £1.75m for Breathe.com, the internet service provider rescued by Great Universal Stores earlier this year. The majority of Breathe's 70 employees are expected to be made redundant as part of the all-share deal.
GUS, the mail order retailer which owns Argos, paid £1.4m for the assets of Breathe in January after the internet service provider fell into administration at the end of last year.
Despite its troubled history, Wayne Lochner, Affinity's chief executive, said yesterday: "We'll be operating Breathe on a profitable basis almost from day one. It's going to significantly assist with our cash issues."
Analysts expect Affinity, which also delivered first quarter ended 31 March figures yesterday, to be profitable next year. At the end of March, it had £12.6m cash in the bank. Shares in the company closed up 4 per cent at 337.5p.
GUS, which will be responsible for all of the related staff costs, said yesterday it would retain the intellectual property for the next generation of technology that Breathe was developing. That technology enables multi-device access to the internet, using PCs, mobile phones and other devices.
Affinity, which had considered buying Breathe earlier this year, said it would use the business as a "showcase" for its products. Affinity offers its clients a variety of services designed to strengthen their brands, such as internet access, customer relationship management and online billing solutions.
It has had success with Powergen where the utility was able significantly to boost the number of its customers by offering a single bill service for electricity, gas and telephone.
Mr Lochner rated the chances of Affinity signing a similar deal this year along the lines of the one with Powergen as "very good". In the first quarter, Affinity recorded a pre-tax loss of £6.6m compared with a profit of £1.2m in the same period last year. Sales were £5.6m up from £2.1m.