This week's merger between Belfast telecoms software firm Aepona and Swedish player Appium is further confirmation that a round of consolidation has begun amongst Irish and international venture-backed software companies.

The all-stock deal, which is in reality a takeover by Aepona, rounds out Aepona's product offering and gives it the kind of portfolio of revenue-generating applications that telecoms companies are looking for.

Michael Crossey, vice-president of marketing with Aepona, said the companies had worked together on projects within the France Telecom group, including its Orange UK and Poland mobile subsidiaries, and at Eircom.

"To improve our chances of winning more business, it made sense to bring our products together," said Mr Crossey.

Jean-Charles Doineau, a telecoms analyst at research firm Ovum, which has been tracking both companies for several years, welcomed the deal.

"Whilst it is clear that there is a significant and growing market opportunity for independent software vendors within the service platform segment, this can only be addressed by companies with real credibility in the marketplace," said Mr Doineau. "Now that they are together, I expect the combined entity to be an even more formidable force in the market over the coming years."

Many local firms find it hard to break through the glass ceiling that they hit at around €2-5 million in revenues. Industry sources suggested most firms are now acquired for about three to five times their annual revenues.

This suggests there is a large number of VC-backed software companies who could at best hope to sell for around €15 million. Given that most of them have had a similar amount of VC backing, their only hope of delivering a decent return to their backers is by acquiring or merging with a competitor.

Both the Irish Software Association and Enterprise Ireland have said that building companies of scale has to be a priority for the local technology industry.

Patricia McLister, divisional manager of Enterprise Ireland's scaling unit, says that the wave of acquisitions begun by industry heavyweights Oracle and Microsoft in recent years is now filtering down to smaller players.

"Customers no longer want point technology solutions, but rather end-to-end solutions," said Mr McLister. "That's what drove the Aepona deal."

She said Irish companies need to achieve scale so that they can assure large customers that they have the capacity and capability to support their products, but also that they have the financial stability to ensure they will be around in the future.

Aepona and five other Irish telecoms companies - Changing Worlds, Cibenix, Openet, Mobile Cohesion and Xiam - earlier this year came together to form The SDP Alliance. By combining their products, which address different aspects of providing new services to telecoms users, from charging to service discovery, they hope to be able to win business from telecoms firms looking to buy a single easily deployed technology stack.

Denis Murphy, chairman of Belfast-based Mobile Cohesion and one of the driving forces behind the formation of the alliance, says that "the high level of co-operation" it is fostering between the members could be the first step towards possible mergers. "I think that would be very positive if it was one of the byproducts of forming the alliance," says Mr Murphy.