Liberty is on the verge of a sale-and-leaseback deal of its mock-Tudor department store on Regent Street in Central London.

The move will be a precursor to a sale of the business. Marco Capello, the former boss of Merrill Lynch’s private equity division, has emerged as the frontrunner to buy the company after the deal is completed, insiders said.

The 135-year-old store, which is 68 per cent-owned by MWB Group Holdings, the hotel and property group controlled by Richard Balfour-Lynn, confirmed yesterday that it had received approaches from potential suitors and said that it was considering a sale-and-leaseback arrangement.

It embarked on a strategic review eight months ago and has instructed Cavendish Corporate Finance and Global Leisure Partners to look for new investors to bring capital and expertise into the company. Other potential bidders were said to include Robert Bensoussan, the former chief executive of Jimmy Choo and founder of Sirius Equity, and Li & Fung, the Hong Kong- based retail supplier.

Liberty said that revenues for the year to December 2009 rose by 20 per cent. The revamp of its flagship store had increased footfall and its online brand remained profitable.

Last year it closed Liberty of London, a standalone fashion shop in Sloane Street, after it was made an attractive offer for the lease of the site. Liberty also owns a profitable textile design business, which licenses designs from its back catalogue to labels including Nike, Balmain and Junya Watanabe, a Comme des Garcons sub-brand.

Overall, the company lost £7 million last year, taking into account restructuring costs.

Arthur Liberty started the business in 1875 with a £2,000 loan from his father-in-law selling ornaments and fabrics imported from Japan. The site’s famous mock-Tudor look was added later, using material from the warships HMS Impregnable and HMS Hindustan.

Shares in Liberty closed up 6.2 per cent, or 17p, at 292p yesterday.