When entertainment giant Time Warner and Internet provider America Online announced the world's largest corporate merger in January, commentators said the new entity would transform the landscape of the entertainment industry.

Not only would the link-up of "old and new media" create a group valued at $335 billion (€345.5 billion), it would give Internet users immense access to music, videos, film and news from the Time Warner stable and spur further such alliances among media companies, telecoms and news providers.

While the AOL/Time Warner merger was the most dramatic of recent times, merger and acquisition activity now has a drama all its own and is rapidly changing the landscape of commerce.

Last month's announcement of Deutsche Bank's proposed £33 billion sterling (€54 billion) takeover of rival Dresdner Bank is expected to transform Europe's financial sector as banks rush to find partners in an increasingly competitive world.

In the telecoms sector, UK mobile phone operator Vodafone Airtouch's successful $185 billion hostile bid for Germany's Mannesmann (which creates the world's biggest such firm valued at $339.7 billion) should generate a wave of mergers among competitors, analysts say.

And a similar pattern is evident in pharmaceuticals, car manufacturing, retailing and other sectors.

According to research by investment bankers JP Morgan, global merger and acquisition activity reached a record $3,324 billion in 1999, up 32 per cent on 1998. It was particularly strong in Europe where it rose by 75 per cent to $1,479 billion, setting a record for the fifth successive year.

Such activity in the telecoms, media and technology sector more than doubled to represent 41 per cent of all global mergers and acquisitions in 1999, followed by pharmaceuticals and chemicals at 40 per cent, the bank said.

In Ireland, record levels were achieved in 1999 with 194 acquisitions, up from 178 the previous year, according to a survey by CFM Capital, a specialist in the area. The value of the reported deals was £4.1 billion (€5.2 billion), but the true value would have been higher as many firms did not disclose the amounts involved.

The top five domestic deals by Irish companies were the management buyout at Clondalkin, valued at £303 million, Jurys' acquisition of Doyle Hotels (£240 million), the merger of IT companies Integrity Holdings and Jyris (£165 million), Esat Telecom's acquisition of PostGem/Ireland Online (£115 million) and Cantrell & Cochrane's Tayto buy (£68 million). Some bigger companies were also active in the international arena, buying 114 foreign businesses.

While most Irish activity has been in the construction and property sector, IT and telecoms companies are now the second biggest dealmakers, accounting for 23 per cent of transactions in 1999, up from 16 per cent the previous year. Unlike the mega-deals in Europe and elsewhere however, most Irish technology deals were small, reflecting the start-up nature of many involved.

Mr Mark McComish, director of CFM Capital, believes the reasons for increased activity include changing attitudes among family-owned enterprises, more available funding, and the 1997 halving of capital gains tax to 20 per cent.

"Everything in the Irish market is booming. Money is available, interest rates are reasonable and a lot of companies are driving for growth. And the only way to grow - to build value and the size of the actual entity - is by acquisition.

"Also, Irish business has changed substantially. No longer is it a case of generation after generation taking over the business . . . And with the reduction of capital gains tax in 1997, they are getting 80 per cent of the value of the company into their hand when they sell, rather than 60 per cent."

SOME companies, such as construction group CRH, print and packaging manufacturers Smurfit, and Kerry Group, the ingredients and consumer food business are becoming global players in their own right.

CRH is considered a "serial buyer", says Mr McComish. In 1999, the firm was involved in 32 transactions, including the three biggest in the construction and property sector, valued at around £700 million in total.

A carefully-honed acquisition strategy is key to Kerry Group's successful metamorphosis from a minor milk processor and dairy coop in the 1970s and early 1980s to its position today as a global player in the food and ingredients business, with annual sales in 1999 of almost £2 billion and 13,000 employees spread across 15 countries.

"Acquisitions have been very important for the Kerry Group," says Mr Frank Hayes, head of corporate affairs. "Given that it only came into being as a greenfield operation in 1972, it couldn't have achieved what it has in global markets without acquisitions. We have operations in 15 countries. It's not feasible to do that organically."

Kerry became a plc in 1986 with a strategy based on an equation which read "strategy x capability x capital = sustained profitable growth", says Mr Hayes. "We had a well-established strategy: we knew what markets we wanted to be in . . . We had a young management team and a successful graduate recruitment programme so we had the capability. The third element, access to capital, we got when we floated."

Since its flotation, Kerry has gobbled up companies around the globe. Its most significant acquisition was the 1988 purchase of Beatreme Food Ingredients, the premier speciality food ingredient supplier in the US, for $130 million, says Mr Hayes. This opened up markets throughout the world for Kerry, and the result has been a compound annual growth rate of 19 per cent.

"What drives mergers and acquisitions is the need to build critical mass, gain access to new customers and capital, and acquire new skill sets or technology," says Mr Gavin McGrath of KPMG Corporate Finance. "Most firms planning a merger or acquisition hope . . . to create synergies so the combined venture will have cheaper costs and greater sales, and so provide more value to shareholders."

To date, few international firms have made significant purchases in Ireland. Interest is picking up, however, as shown by the recent takeover of Esat by British Telecom, NTL's purchase of Cablelink, Commercial General Union's acquisition of Hibernian Group and ADC Telecommunications' successful bid for Saville Systems.

But it's the fate of the bigger Irish firms - Bank of Ireland, AIB, Eircom, even Elan - that will be most scrutinised in the months ahead, as consolidation in the financial, telecoms and pharmaceutical sectors whets the appetite of the global players.