US private equity firm Carlyle Group (Nasdaq:CG) is in advanced talks to buy UK software firm Innovation Group. Innovation confirmed the development in a stock exchange filing.

Sky News earlier reported that the companies have been in discussions about a possible deal for several weeks. Carlyle values Innovation at about £500m (€685m, $770m) or 40 pence per share.

Sources told the news website that the deal was expected to be backed by a number of Innovation's largest shareholders, including Henderson Global Investors. Sky added that Investec was advising Innovation on the talks with Carlyle, which was being assisted by bankers at HSBC.

However, Innovation cautioned that it was not sure of an offer being made for it. As per the UK rules regarding takeovers and mergers, Carlyle has until 25 September to announce a firm intention to make an offer for Innovation.

Following the news, shares in Innovation closed up 9.93% at 38.75 pence on 28 August. The shares have risen by 18% in the last 12 months. The company has more than 1.2 billion shares in issue.

Founded in 1996, Innovation provides software and services to help motor and property insurers process claims. The company claims that its software and services help customers reduce costs and risks, improve efficiency and increase customer satisfaction and loyalty. Innovation employs more than 3,000 people in the UK, Europe, North America, Asia and South Africa.

Early investors who stuck with the company are expected to make significant gains if a deal is struck. About six years ago, the company was valued at just £50m. The company is headed by Andrew Roberts, and he is expected to get a multi-million pound payout from the takeover.