SSTL's Galileo demonstrator Giove-A was launched in 2005
Europe's largest space company, EADS Astrium, looks set to acquire the British satellite manufacturer SSTL.
Surrey Satellite Technology Limited started as a spin-out from the University of Surrey in 1985.
It has become the world's leading manufacturer of small satellites, producing low-cost platforms for Earth observation missions.
It also built Giove-A, the first test satellite for Europe's forthcoming Galileo satellite-navigation service.
The two space companies issued statements on Monday detailing the proposed sale.
They said Astrium had entered into an agreement to acquire SSTL. The £40-50m "landmark deal", they explained, would provide the financial and industrial resources required for SSTL's expansion and future development.
Completion of the sale is subject to obtaining the relevant regulatory approval.
Professor Sir Martin Sweeting, SSTL's founder and executive chairman, said the agreement brought together the two major players in British space - SSTL and Astrium in the UK.
He told BBC News: "Within the UK, we can have a co-ordinated approach to space, covering both large satellites and small satellites. This makes us a key international player."
He said projects such as Moonlite, a proposed UK-led mission to the Moon, would benefit from the alliance.
"Together we will be able to make Moonlite more of a reality," he said.
Under the agreement, which was signed on Friday, the University of Surrey will sell its majority stake in SSTL.
SSTL, which is based at the university's campus in Guildford, will remain an independent UK company.
A spokesperson for the company said: "SSTL now has the funding to achieve the growth that it deserves.
"It's a great little company, but it's a small company in global terms, and it could be so much better - all it needs is the right parentage to grow, and that's what it's got now."
Professor Christopher Snowden, Vice-Chancellor of the University of Surrey, said the link between SSTL and EADS Astrium was an exciting opportunity.
He said: "It brings together the strongest offerings in the European space industry with some of the strongest technologies from research, with the government interest to make it happen."
EADS Astrium employs 12,000 staff across Europe, with substantial British centres in Stevenage and Portsmouth.
The space division of EADS leads the production of Europe's Ariane launcher and is a dominant force in spacecraft manufacturing. The company was prime contractor on "Jules Verne", the space freighter which has just docked with the International Space Station.
Colin Paynter, CEO of Astrium in the UK, said the British space industry was known for its design and manufacture of telecommunications satellites and interplanetary spacecraft.
He said: "SSTL is one of the great success stories of the UK space industry and will be a substantial complement to what we can offer customers around the world with its expertise in small and micro satellites and their innovative approach to developing new markets for space."