Heads of terms have been signed between both companies and due diligence is at 'an advanced stage'. The enlarged business would trade as Paver Smith.
When the deal is completed at the end of May the agency will have 31 staff and a forecast turnover of £2.4m.
Clients will include Grant Thornton, Shell, M&S Simply Food and DLA Piper.
Paver Smith MD Dougal Paver said he was actively pursuing acquisitions in Manchester with the aim of reaching £5m turnover by the end of 2009.
Factory Communications was set up by the former acting editor of the Liverpool Echo Jon Brown in June 2006. His partner Jane Wolstenholme, former editor of the Liverpool Daily Post, joined as director last year.