Beleaguered furniture retailer MFI could merge with a competitor.

MFI and its private equity backers Merchant Equity Partners (MEP) have been in talks with several rival groups including Homeform and Swedish group Nobia.

Homeform runs Moben Kitchens and Nobia operates Magnet Kitchens. A merger with Homeform would create a 360-store chain with more than 5,000 employees.

An MEP spokesman told The Sunday Times: “ We are happy with the operational progress we have made with MFI since we bought the business, but recent market conditions have prompted us to consider our strategic options and possible business combinations.”

Concerns over the future of MFI came to the fore when two directors from restructuring specialist Hilco were appointed to the retailer’s board.

In July, MFI brought in restructuring expert Kroll Talbot Hughes (KTH). At the time, MFI was keen to play down speculation that it was in trouble. “KTH is helping with our financial reporting systems, operating issues and forecasting. This is not a restructuring issue,” said an MFI spokesman.