Legal & General has agreed to sell housebuilder Cala Homes for an enterprise value of £1.35bn.

The financial services group sold the business to Ferguson Bidco Limited, a vehicle owned by investment funds Sixth Street Partners and Patron Capital.

It adds that £1.16bn of sale will be in cash, of which around £500m will be paid when the deal closes, with the remaining consideration being paid over the next five years. The transaction is expected to complete in the final quarter of this year.

Mergers interest in the housebuilding sector has increased following the new Labour government’s pre-election pledge to build 1.5 million homes over the next five years. Over the previous five years the country built one million homes.

Barratt and Redrow are in the middle of a £2.5bn merger, that is expected to build about 23,000 homes a year and have a turnover of more than £7bn.

Cala, founded as the City of Aberdeen Land Association in 1875, sold 2,917 homes last year, producing £1.3bn of sales and a £112m pre-tax profit.

Shares in Legal & General fell 2.5% to 222.8p in late morning trading.

AJ Bell investment director Russ Mould says: “Legal & General’s shares have been weak since its strategy update in June.

“Therefore, it’s not a surprise to see the company imply it might use some of the sale proceeds to fund share buybacks as it needs to deliver some more positive news to win back the market’s favour.”

Legal & General group chief executive António Simões (pictured) adds: “Cala has been an important part of L&G for over a decade, with profits increasing ten-fold since our initial investment in 2013.

“The sale announced today will provide capital to deliver our strategic goals of sustainable growth alongside enhanced returns for shareholders.”

Sixth Street co-chief investment officer Julian Salisbury says: “Cala has a bright future and we are proud to be entering this new chapter as stewards of a company with such a deep history and long track record of sustainable growth.”