Pepper, a Plymouth-based direct mail house, pulled the plug on the deal following the discovery of additional debts accrued subsequent to the reporting period of the company's latest accounts.

Jude Whitford, commercial director at Pepper, said: "The due diligence was up until their financial year-end, which was the end of June, and as it was presented at that point things didn't look too bad.

"However, further information came to light in July and August when we put information requests out for updates on the current trading position and it was only then that we became aware of the worsening situation, and that's what made the deal untenable for us."

TL Visuals managing director Charles Lewitt was looking to sell the business due to his retirement from the industry.

A spokeswoman for accounting firm Mazars, which is advising TL Visuals, said: "We are advising the directors and researching options with them."

According to reports filed at Companies House, TL Visuals posted a pre-tax profit of £127,000 for the year ending June 2007, but a net debt of £1.4m.

TL Visuals was not available for comment.