Fashion designer, Mr Paul Costelloe has sold his designer business to an international silk supplying company, which will introduce its new brands to Europe and the US. He will remain on as design director.

Silk Industries paid nearly £1.25 million for the business and the brand name.

Mr Costelloe, the Irish-born and London-based designer who specialises in natural fibres, said yesterday he expected the move would make his label one of the biggest in Britain and Ireland within five years.

His most famous client was the late Diana, Princess of Wales, but Mr Costelloe said the business had been a struggle, maintaining a high profile with a low turnover. He said the acquisition by Silk Industries, a public company, of his business for £1,226,000 would enable it to move on to the continent in the short term and the US in the long term. He will continue to be a director of the company with responsibility for design and image.

"We are a pretty well unknown label in Europe and the US. We would be looking at Germany and Scandinavia. They would be the two markets most similar to the UK and Ireland," he said. His brand had been on the market, he said, and an initial contact on the deal was made by a stockbroker. Mr Costelloe received £350,000 for the licences and its 22 per cent share of United Fashion, the holding company of Paul Costelloe International (PCIL).

A £385,000 payment will be paid to acquire the remaining 78 per cent of United Fashion from 3i plc and Mr Robert Eitel, United Fashion's current managing director, including a debt owned to them.

In Ireland, the Paul Costelloe designs are sold exclusively in Dublin through Brown Thomas, and, in Cork, through the Brown Thomas outlet, Cash's. A spokeswoman said it was planned to introduce the range to Todds of Limerick, also part of the Brown Thomas group, in the next season. Aer Lingus, Bank of Ireland and British Airways had their uniforms styled by the designer's corporate wear division.

Silk Industries, a British company whose top clients include Polo/Ralph Lauren, Aquascutum and Austin Reed, will take over PCIL's trade debt of £236,000. It will also provide working capital of £205,000 to United Fashion, to be subordinated to a bank.

Ownership of the licences will allow Silk to develop the Paul Costelloe brands of women's wear, menswear, corporate wear and soft furnishings. Silk is also taking over the Costelloe design studio in London and its manufacturing facility in Dungannon, Co Tyrone, where 50 people are employed.

Mr Costello, who will continue as a director of PCIL, said that his menswear range had been "lying dormant for a long time" and would be given a financial and marketing injection. "It is a good time for brands; it is a good time for designers if they can be fortunate enough to hook on to the right company." He said that Mr Ian Herbert, as the new chief executive of United Fashion, was somebody with experience of working on the Calvin Klein range, as a former senior executive of that company. Mr Herbert was also managing director of menswear manufacturers Copeland Clothes, Northern Ireland, which is a subsidiary of Albion, between 1987 and 1992.

"I am inheriting a successful financial structure for a designer who should really be designing and not worrying about other things," he said, "It is going to provide the possibility of becoming something reasonably significant in this industry."

United Fashion made a loss before tax of £17,000 on a turnover of £4.64 million in the financial year to November 30th, 1996, but is expected to show a profit for the six months to May 31st.