Merchant, headed by former Deutsche Bank director Henry Jackson, will focus on improving MFI's retailing capabilities, rather than adopting traditional private equity techniques.
The chain, to be led by former Magnet boss Gary Favell, will attempt to distinguish itself from rivals on product, service and quality, it is understood.
MFI's retail business has struggled in the competitive environment and was dogged by issues such as delivery problems, poor service and proliferation of product. In June, MFI Group revealed the division had made an interim loss of
However, industry observers believe the stores arm could be revived. Retail Knowledge Bank senior partner Robert Clark said: 'MFI is a worthy retailer, but it has lost momentum. It's all about management - it has to get the product right, the stores right and promote it properly.'
However, he warned: 'The sector is prone to casualties, so they'll have to be sharp and there's lots of competition. Argos in particular is much more of a competitor than it used to be.'
The acquisition of MFI will be Merchant Equity's first deal. Jackson is convinced that there are opportunities in retail for a new breed of private equity investors. Rather than primarily sweating assets, he believes there are big returns to be made from turning around ailing store groups. Former Halfords chief executive David Hamid and ex-Somerfield boss John von Spreckelsen are both operating partners at the business.
Talks about the sale of MFI Retail have been ongoing for several months. It is understood that the disposal will be for a nominal sum and accompanied by a substantial dowry.
It is unclear whether stores will continue to trade under the MFI name or a new fascia. MFI Group will focus on its Howden joinery business once the stores division is offloaded.
No comment was available from Merchant Equity or MFI.