ADVERTISING AGENCIES the McConnell Group and AFA O'Meara have agreed to merge. The pair had combined profits of about €4 million from turnover of €89 million in 2007 and the merger will make the new entity the largest advertising firm in Ireland.

The group will be known as McConnells although the AFA brand will continue to be used for some time. The agency will be based at McConnells' office on Barrow Street in Dublin and all 125 staff are being retained.

It is understood that McConnells' four largest shareholders are selling their shares as part of the transaction, which was concluded early on Saturday. No financial details relating to the deal were revealed but industry sources suggested that McConnells was worth more than €20 million.

McConnells' biggest shareholders are managing director Jarlath Jennings, chairman John Fanning, finance chief Patrick Hurley and former senior client director Greg Jones. The four owned about 95 per cent of the business between them.

Mr Jennings will step down as managing director of McConnells Advertising in March and be replaced by his colleague and fellow shareholder Fiona Scott.

Mr Jennings is expected to leave the merged group by the end of the year. Mr Fanning will act as a brand strategy consultant to the agency.

AFA managing director Damian Bell is to become group chief executive of the enlarged company. It will be chaired by Shane Lynch, who holds the same position at AFA.

McConnells is believed to have explored a number of corporate deals in recent years. The agency has lost a number of significant accounts over that time, including Eircom, Kelloggs, Danone and the National Lottery.

It posted an operating profit of €6 million on turnover of €69.2 million in the year to the end of December 2006. While its turnover has remained static in the interim period, its profits have declined sharply.

McConnells recently picked up O2's creative business and an account relating to the government's Transport 21 development.

AFA has annual turnover of about €20 million. Its clients include Irish Rail, 98FM, and the Department of Agriculture, Food and Fisheries.

Stuart Fogarty, AFA's largest shareholder, will be a director. He said the deal was good news for clients of both agencies who would have access to "more talent and more resources". Mr Fogarty also welcomed the fact that the businesses would remain Irish owned. "The Tricolour shall fly proudly outside this building," he said.

AFA recently received planning permission to demolish its premises at James Place in Dublin. The site will be redeveloped as a 20,000 square foot office space, which, on completion, is expected to be worth €15-20 million.

Mr Fogarty, whose father Aubrey founded AFA, declined to comment on the new shareholder structure.