This time last year the mood in financial markets across the globe was decidedly sombre. Despite enduring three years of falling share prices, investors in stock markets were continuing to suffer, as there seemed to be no end in sight to the equity bear market.

Rhetoric regarding the global war on terrorism was at its peak as the US and Britain prepared to topple Saddam Hussein.

Many insurance companies in Britain and across continental Europe faced solvency problems due to the persistent decline in the values of their assets. The squeeze on insurance companies was being further exacerbated by ultra-low long-term bond yields, which had pushed up the present (or capital) value of their future liabilities.

As a consequence some insurance companies were forced to sell part of their equity portfolios to shore up their weakened balance sheets, thus adding a further twist to the selling pressure on equity markets.

As we now know, the longest bear market of the past 50 years ended in late March 2003 and already, barely a year into a new bull market, memories of the bear market are fading fast.

Last week, Europe's largest mutual, Standard Life announced that it had sold £7.5 billion (€11.14 billion) worth of equities in order to comply with tough new solvency requirements. The company also recently announced that it was considering abandoning its mutual status and may seek a stock market listing in order to gain access to new sources of equity capital.

This time last year such an announcement would probably have severely dented the already weak British equity market. In the current market, the announcement had no apparent impact on a strong British stock market, which was reaching new 19-month peaks.

A further sign that bull market psychology is now well entrenched is the re-emergence of merger and acquisition activity. Giant takeovers in the large stock markets are firmly back on the agenda. In the US, Comcast has launched a multi-billion dollar bid for Walt Disney, while Vodafone was outbid by Cingular for AT&T Wireless. Interestingly, Vodafone's share price rose sharply when it announced its withdrawal from the auction process. This implies that Vodafone shareholders felt that such a takeover would not add value and/or contained too much risk.

There is an ongoing debate among academics and financial analysts as to whether mergers and acquisitions are in the best interest of shareholders in general. There are no definitive answers but the evidence tends to support the view that shareholders in acquiring companies often do badly in the post-merger period.

This suggests that on average companies tend to overpay, particularly for large-scale acquisitions where competition is most intense. The corollary of course is that shareholders in the companies being acquired tend to benefit.

Large-scale merger and acquisition activity has not yet become a feature of the Irish equity market, although corporate activity has picked up over the past six months.

The acquisition of First Active by Royal Bank of Scotland was completed on schedule in January and delivered a very healthy profit to First Active shareholders.

There are also two long-running take-over sagas involving the Gresham Hotel Group and Barlo. Regarding the latter a management-led group led by chief executive Mr Tony Mullins first announced its intention to take the company private several months ago. At that time the shares had been trading around 20 cents and the indicated price range of the mooted offer was in excess of 30 cents.

Although the company had been suffering from weakness in the plastics and radiator markets, there were signs of an improvement in trading conditions.

The takeover of Athlone Extrusions in early 2001 combined with subsequent weak trading conditions resulted in Barlo being saddled with high debts. By end-March 2002, the company had net debt of €140 million and the board decided to suspend dividend payments in order to conserve cash.

Since then better trading conditions and tight cost control has led to a significant reduction in debt. Stockbroking analysts are forecasting that Barlo's net debt will be well below €100 million by early next year.

In recent weeks, Barlo's management finally tabled a conditional offer for the group at 40 cents per share, valuing the share capital at €70 million. Since then the shares have traded at 42 cents, significantly above the offer price, due to aggressive purchases made by funds controlled by Mr Dermot Desmond.

It would seem that the wealthy financier is giving credence to analyst reports published by stockbrokers that argue that a takeout price in the 45-55 cent range would more closely reflect the true long-term value of the company.

Private investors in Barlo are likely to sit tight and await further developments. The fact that the share price is currently trading above the management offer of 40 cents indicates that a higher takeout price is possible.

On the other hand, if the management were to withdraw the offer, there is no guarantee that another entity would bid for the entire company and in the absence of such a bid the shares would almost certainly trade below 40 cents.

It does seem that this long-running saga has further to run although the most likely outcome is that Barlo management will succeed in taking the company private.

Shareholders in Barlo seem to have little to lose by sitting tight and hoping that the eventual takeout price will be significantly higher than 40 cents.

Investor

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