The proposed deal values each WMS share at 11.50 pence, a two per cent premium on the firm's price of 11.25 pence at close of business yesterday.

The offer comprises of one new Financial Objects share for every four WMS shares, calculated using the closing price of a Financial Objects share of 46 pence on Thursday.

AIM-listed WMS, which is based in the West Midlands, provides software products to the financial services, health and property markets. The firm has been struggling over the last year after delays in signing contracts and the termination of a deal with Personal Pension Management Limited (PPML) hit the group's revenues.

In a statement issued today, the vendor posted a 16% drop in turnover to £6.1m, compared to £7.3m a year ago. Operating profit before goodwill amortisation fell to £194,000, from £290,000 last year. The cash position at the end of the year was £1.55m (2003: £1.52m). Net Funds were £0.14m (2003: £1.52m).

The firm secured four new contracts for its Lisa system during 2004, with an initial order value of £800,000 including the first year's maintenance.

But despite the drop in revenues, WMS made three acquisition during the year - Fairs, a provider of software to IFAs, the property management software business of GVA Grimley and document management firm Genisys Technology.

The total number of jobs affected by the move has not been disclosed, although Financial Objects says the closure of WMS's head office will result in annual cost savings expected to be at least £500,000. Furthermore, the vendor says the use of its offshore development centre in Bangalore will allow WMS to offer more competitive pricing when competing for new business.

Commenting on the acquisition, Paul Newton, chairman, WMS, says: "The case for consolidation of smaller companies within the software sector is clear, as margins continue to reduce and the time required to secure contracts increases. A combination of WMS and Financial Objects will see more opportunities open up."

Roger Foster, chairman and acting chief executive, Financial Objects, says: "This proposed acquisition significantly enhances our scale and credibility and provides us with a strong recurring revenue stream."

In afternoon trading Financial Objects stock was up 5.40% to 48.50 pence, while WMS shares rose 2.20% to 11.50 pence on the news.