DIY retail group Travis Perkins has agreed to pay £5 million for a 30 per cent stake in rival retailer Toolstation, with an option to buy the remainder of the business over the next few years.

Travis Perkins, which owns DIY chain Wickes and the eponymous builders merchants, will provide Toolstation with an initial loan of£7 million to pay off debts, followed by an additional loan of up to£30 million over the next four years to fund Toolstation’s expansion from 11 to up to 100 stores.

Travis Perkins also has an option to purchase the remaining 70 per cent of Toolstation after four years, based on a multiple of profits with payments in 2012 and 2014. It is also expected that, in the next six years, the£30m loan will be repaid through trading.

The deal strengthens Travis Perkins’ presence in the home improvement market. It owns building materials chain Keyline, kitchens joinery chain Benchmark and City Plumbing Supplies.

Travis Perkins chief executive Geoff Cooper said: “This investment represents a significant advance in the development of our multichannel strategy.”

Toolstation reported sales of£21.4 million for the past 12 months and gross assets of£12 million for the same period. For the year to July 31, 2007, it recorded a pre-tax loss of£300,000.

Toolstation was formed in 2003 by Mark Goddard-Watts, a founder of Screwfix, which is now owned by Kingfisher. It trades via its stores, web site and mail-order catalogue.