Poundland is set to buy rival 99p Stores in a £55 million cash and shares deal 14 years after the family-run chain was founded.

It now has 251 shops, which trade as 99p Stores and Family Bargains and serve more than two million customers.

Annual sales were £370.4 million in the year to February 1 last year and underlying earnings were £6.1 million.

Poundland, which floated on the stock market last year, will also pick up a warehouse and distribution centre in the transaction.

Chief executive Jim McCarthy said: "This is a good deal for both businesses and will benefit customers and shareholders.

"Through working together, Poundland will improve choice, value and service for 99p Stores' customers, bringing Poundland's know-how and range to 99p Stores."

Family-run 99p Stores was founded by Nadir Lalani with a single site in Holloway, north London, in 2001, helped by sons Hussein and Faisal, before opening a further three stores later that year.

It has grown rapidly in recent years following the demise of Woolworths in 2008 as bargain retailers have become regular fixtures in UK high streets.

Poundland is paying £47.5 million in cash plus £7.5 million in new shares. The deal will be partly funded by a share placing.

The firm said the deal was dependent on the approval of the Competition and Markets Authority (CMA) and talks with the regulator have already been held.

Poundland describes itself as Europe's largest single price value retailer. It has opened nearly 600 stores in the UK, Republic of Ireland and Spain since 1990 - trading in the latter two countries under the Dealz brand.

Mr Lalani has previously told The Grocer how he made his way in business, after arriving in the UK from Tanzania in 1970s, building up and selling two convenience shop chains before founding 99p Stores.

In a CNN interview in 2012, he said the key to the chain's success was its buying strategy and it had also benefited from the economic downturn "to a certain extent".

He said: "We make very fast decisions. Whatever people want to sell. They say we want to get rid of this stock. And we buy those stocks straight away.

"With the downturn... the middle-class people are coming in our store and then they come in and they are surprised what they have been paying Tesco. The prices are so much cheaper, and it is the same brand. Because we sell a lot of branded products."

Buying Northampton-based 99p Stores will give Poundland a bigger presence in the south of England where it is under-represented.

There is not yet a schedule for converting the stores into Poundland shops and this is expected to be done over a period of time.