Finsbury Food Group has agreed a reverse takeover of Scottish cake bakery Lightbody Group for a total maximum consideration of GBP37.5m (US$73.69m).

Lightbody, which is focused on the celebration cake market, operates from two bakeries in Hamilton and a depot and European sales office in Rennes, France. Lightbody manufactures seasonal and licensed cakes for Disney and Thorntons, alongside a range of chocolate enrobed cakes, cereal snacks and bite-sized cakes for many of the large retail multiples in the UK.

The acquisition is expected to transform the enlarged group into the UK's leading premium cake business. The company added that it expects the deal to offer a platform to expand its share of the European cakes market.

Dave Brooks, chief executive of Finsbury, commented: "The proposed acquisition of Lightbody will help create the UK's leading premium cake business. With its market leading position in celebration cakes and strong management team, it fits perfectly within our strategy to be 'The Best at What We Do'. The opportunities for the new group are excellent, and with the acquisition we will have a scale where we can drive our premium agenda with all of our major customers."

AIM-listed Finsbury said it would raise GBP10m to fund the takeover by placing 12.5m new Finsbury shares at GBP0.85 each. The group will make an initial payment of GBP18.4m, adjusted for Lightbody's debt and working capital, and issue 10m new shares and 924,850 notes to Martin and Jessie Lightbody, current owners of Lightbody. An additional GBP9.7m in cash and loan notes will be paid in July, dependant on Lightbody achieving certain performance related targets.

The acquisition is expected to significantly enhance earnings in the first full financial year following completion.