Construction and house builder Galliford Try has agreed a £42 million deal to buy Morrison Construction from Anglia Water Group.
The combined company will have a forward order book of £1.3 billion after the link up which needs the approval from Galliford's shareholders.
Galliford, whose Midland operations are centred on Hinckley, said it would be placing 46.8 million shares at 107p to raise £50.1 million to finance the deal.
The equity issue will raise £47.3 million after expenses while Galliford said the acquisition would be earnings enhancing "in the medium term".
I t follows Galliford's £67 million purchase of Lincolnshire housebuilder Chart-dale in January.
Under the deal, Galliford will acquire the UK construction services division of Morrison, which is based at Sutton Coldfield, a nd has an annual turnover of £330 million.
It will also get Morrison Project Investments - the Edinburgh based arm which invests in PFI schemes, but not the support services side which will be retained by AWG.
M orrison is currently involved in two early stage PFI investments: the Defence Housing Executive (DHE) project in Portsmouth and the Highland Schools project.
Founded in 1948, Morrison Construction has approximately 1,500 employees based in eight offices throughout the UK and provides services in the areas of building and infrastructure (including highways maintenance), to both public and private sector clients.
The deal will allow Galliford to increase its presence in the water sector, where it already carries out construction work for United Utilities in the North West of England.
Morrison for its part has clients including British Waterways, the Highways Agency, HM Prison Service, the Department of Environment, health and education authorities, the Scottish Executive, Thames Water, Welsh Water, Yorkshire Water and National Grid.
Following the deal Morrison Construction will form part of Galliford Try's enlarged construction division.
But Galliford said there was unlikely to be office closures and only minimal staff reductions because there were few geographical and client overlaps.
It said the acquisition would give it the critical mass, financial strength and expertise to bid for larger, higher margin projects and enter the public and water sectors.
Operating cost savings of around £2 million per year and opportunities for participating in more PFI projects are expected to be achieved.
Greg Fitzgerald, chief executive of Galliford Try, said: "The businesses have complementary skills and market strengths, particularly in infrastructure and public sector projects, and their combination will create a UK construction business of significant scale and market presence.
"This is the s econd major acquisition we have announced this year and we are therefore taking this opportunity to raise additional equity through the placing and open offer in order to provide a suitable capital structure for our enlarged operations."
AWG said the Project Investments unit would continue to provide assistance to AWG in the management and future sale of its six remaining PFI investments, which have a current book value of £7.6 million.
AWG chief executive Jonson Cox said the deal was "a very good result for all parties".
Morrison Construction Services generated sales of £333 million and an operating profit of £400,000 in the year to March 2005.