The world of media has become one of the hottest sectors for corporate activity and more deals are in the offing.

We've already seen the evidence in 2006. First, we heard that the team behind Ireland's newest TV station, Channel 6, had successfully completed a major fundraising initiative, bringing in €14 million to underwrite the launch of the station.

Then we had the news that Denis O'Brien had swooped for 3 per cent of Independent News & Media. Then came the announcement that CanWest was looking at a possible sale of its 45 per cent stake in TV3.

So what's driving this activity?

On the general side, the key factor is the success of the broader economy and increasing confidence about the outlook for the medium term at least. The performance of the media sector mirrors the performance of the wider economy very closely. In boom times, companies' spend on advertising and media revenues rises. In lean times, advertising budgets are amongst the first areas to be cut and media revenues shrink.

But the various sectors of the media possess different characteristics that attract buying interest.

The attractiveness of the Irish TV advertising market for new entrants is due to its relative underdevelopment and its substantial growth potential. Expenditure on above-the-line advertising has grown significantly in the last 10 years and is likely to continue to grow.

Ireland is also unusual in that costs for advertising in the press are very high, while TV airtime sales costs are relatively low.

The demographic profile in Ireland is also very positive. Unlike most of Europe, our population includes a high proportion of younger, more affluent and more TV-literate people seeking a higher level of viewing choice.

In the past, historically high entry costs and high advertisement production costs acted as a drag on the sector.

Thanks to new digital technology advances and the presence of digital TV platforms (which ease the challenge of entry for new companies), this is much less of a factor now. All of this points to significant growth potential in the Irish TV advertising market, as borne out by the 14 per cent growth achieved in 2005 (source: Carat Ireland). And that attracts investors.

If corporate activity in the TV sector is relatively recent, heightened activity in the regional newspaper market has been evident for a number of years. The Johnston Press acquisition of the Leinster Leader Group for €139 million in September saw the highest multiple of profits paid for a local newspaper group in the recent past. This transaction was in addition to the disposals of the Local Press Group (comprising the Derry Journal and the News Letter), the Tallaght Echo and the Athlone Voice, all in the last year.

There has been considerable consolidation in the local newspaper market in recent times with five main players now dominating (Johnston Press, Independent News & Media, Thomas Crosbie Holdings, Dunfermline Press Group and Alpha Group). But there are still about 30 independent paid local newspapers, three of which were launched in the last year, and more consolidation is likely in 2006.

Again, the strong growth in advertising revenue in the newspaper sector (an increase of over 250 per cent between 1998 and 2004) is a major driver of deal activity. Regional newspapers are particularly attractive acquisition targets due to their high level of profitability, loyal readership and the fact that they tend to be less sensitive to economic conditions than daily national newspapers. Consolidators can obtain significant economies of scale.

While growth in the radio advertising market has been more muted, revenues still doubled between 1998 and 2004. There have been a number of high-profile acquisitions of radio stations in the recent past (notably FM104 and Today FM - both acquired by Scottish Radio Holdings, now Emap).

However, the local radio market remains somewhat fragmented with 12 of the country's 28 local stations currently under independent ownership.

A major influence on the level of consolidation activity in the radio sector is the ownership and control restrictions set by the Broadcasting Commission of Ireland (BCI). However, the BCI eased these restrictions late last year, opening the way for companies like UTV and Communicorp Group (owned by Denis O'Brien) to consider further opportunities.

Emap will be focusing on the renewal of Today FM's national licence in the short term, but with just two local licences (FM104 and Highland Radio) under its belt, it is also likely to be in the market for more acquisitions.

Initial interest in the radio market in Ireland centred on Dublin. However, as most of the opportunities to do deals in that market are now gone, attention is likely to shift to the other cities and to commuter areas in the vicinity of Dublin.

After some of the more obvious opportunities are pursued in these markets, buyers should begin looking closely at smaller, more rural stations. This is already happening, as evidenced by Emap's acquisition of Highland Radio and Radio Kerry's acquisition of Shannonside/ Northern Sound.

The robust growth in the advertising market over the last decade has filtered through to all areas of the media industry, making Irish companies attractive targets for both international and domestic consolidators. We can expect further M&A activity in 2006.

Ted Webb, director, IBI Corporate Finance. IBI has advised on a number of the deals referred to in this article.