An initial sum of £3.9 million will be followed by two deferred performance related payments of up to £850,000 and £750,000 in 2011 and 2012 respectively. The initial payment will be financed from the existing cash reserves of Digital Barriers, which raised £20 million on AIM when it floated on the market as a cash shell earlier this year.

Moira Smith, the founder, managing director and majority shareholder of Waterfall will remain with the business as managing director. The current management team will also remain in place.

Surrey-based Waterfall produces computer software and security camera systems for government and commercial clients in the defence and security sectors. The company’s products include image enhancing software as well as providing security consultancy services. In the year to September 2010, Waterfall declared a net profit of around £480,000 on a turnover of £2.10 million and had net assets of £740,000.

AIM-listed Digital Barriers designs and produces anti-terrorist security and surveillance systems, such as CCTV and guarded perimeter protection. The company’s customers are high-profile public and private businesses and institutions including airports and government facilities.

The deal follows Digital Barriers’ acquisition of the Solutions division of the security company Overtis Group for £3.2 million in July.