Faulds has been looking to set up a London base since December 2001, and now the agency is in final level talks with MMDH, with a deal on the table.
Although no deal has yet been signed, an announcement is expected to be made in the forthcoming weeks.
As part of the acquisition, it is believed MMDH will adopt the Faulds name, but no redundancies will be made. The Scottish agency has been looking to acquire an existing standalone agency rather than build a London operation organically.
If the acquisition goes forward as expected, the existing management at MMDH will be offered board positions at Faulds.
Dennis Chester, Faulds' managing director, denied a deal had been signed, but admitted Faulds was involved in talks. "We are looking at several options in London right now just as we did in Manchester a couple of months ago. Unfortunately, Manchester didn't work out but hopefully at least one of the options we have in London will," he said.
Graham Deakin, a managing partner of MMDH, which was established in 2000 with clients including MTV Networks Europe, Room2 and British Bakeries, added: "We have not concluded any deal."
Faulds' intention to expand to London was announced in December following the completion of its management buyout. Founded in 1985, the agency employs 140 people at its offices in Edinburgh and Glasgow.
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