Around 2,500 jobs at collapsed firm Connaught have been rescued after administrators struck a deal to sell the bulk of its social housing division.

The £28 million deal with construction firm Morgan Sindall - which has an operation at Birmingham Business Park in Solihull - comes two days after the appointment of KPMG as administrators for the main company, and its subsidiaries Connaught Partnerships and Connaught Technical Solutions.

Morgan Sindall said its affordable housing division, Lovell Partnerships, had reached an agreement to acquire “the majority” of the ongoing contracts and assets of Connaught’s social housing business.

John Morgan, executive chairman of Morgan Sindall, said: “Our focus now will be to ensure a smooth handover of the contracts and to minimise disruption to essential maintenance services.”

Leeds-based Connaught Partnerships, which was the largest division placed into administration, employs 4,400 staff across the UK, so while the deal will be a relief to many, some jobs remain at risk of redundancy.

Staffordshire-based Lovell said its newly-acquired contracts would generate around £200 million in additional annual revenues.

The firm, which posted operating profits of £14.9 million in 2009, said the type of contracts it had taken on involved both response and planned maintenance work.

Mr Morgan said: “This is a step change for Lovell. The acquisition significantly increases the scope and scale of our planned and reactive maintenance activities and further develops our market leading position.”

Lovell could not specify exactly how many contracts will be added to its books, but a spokesman today said it was “the bulk” of the social housing business.

The administration of Connaught’s main division left around 280 contracts for councils and public sector bodies up in the air, and caused uncertainty for suppliers and contractors.

Connaught was thrown into turmoil after warning in June that Government spending cuts could blow a £200 million hole in revenues over this year and next.

Bosses at Connaught held crunch talks with its lenders, led by taxpayer-backed Royal Bank of Scotland, and other potential financiers in a bid to keep the company afloat.

But it told investors late on Tuesday it was left with no option other than to start the process of administration after failing to secure further financing.

Other regional bases affected by the decision included those in Glasgow, Bromsgrove, Crawley and Essex.

More than 4,500 staff work at its other subsidiaries that have not been placed in administration - Connaught Compliance and Connaught Environment, which employ 1,800 and 2,700 respectively.

KPMG said these businesses continue to trade as normal and possible buyers had shown interest.

Connaught, which started life in 1982 as a concrete repair specialist in Sidmouth, provides services to the environmental, social housing, public sector and compliance markets. The firm employs around 10,000 people across all its divisions.

Founder Mark Tincknell left the company earlier this year on health grounds less than six months into his second spell as chief executive.