Deal-making in Ireland is set to stay at a high level in 2006, with the focus in particular on growth of small to medium-sized businesses, writes Claire Shoesmith.

Whether it's your personal life, your schoolwork or even your job prospects, the start of a new year is the perfect time to reflect on how things went during the last year and how you think they're going to go in the new year. The same goes for business.

There are hundreds of people whose job it is to analyse the events of 2005 and to predict whether certain trends seen in the last 12 months are likely to continue during the coming year. The corporate finance sector is no different.

According to Joe Devine, a director at Ion Equity in Dublin, the value of mergers and acquisitions (M&A) in Ireland rose by 19 per cent last year to €11 billion and activity is likely to stay at a high level again this year.

Most other corporate finance experts agree. John Given, head of mergers and acquisitions at A&L Goodbody, believes Ireland's M&A outlook is rosy. Robert Dix, head of transaction services at KPMG, says things have just got better and better since the end of 2004.

While activity levels still haven't returned to the heady highs of 2000, Dix expects the current level of activity to continue for at least another two years. "There is plenty going on now and I can't see any reason why this will change," he says.

Last year was characterised by a small number of particularly large deals, which resulted in Ion's annual M&A survey showing an overall increase in deal values, but an actual decline in the number of deals carried out. In 2005, the number of deals fell to 115 from 190 in 2004.

The average value of the deals carried out rose significantly to almost €99 million, with the largest transactions being the €2.6 billion merger of Jefferson Smurfit and Kappa Packaging and Waren's €2.3 billion acquisition of Warner Chilcott.

This compares with an average value of €31 million in 2004, where the biggest deal was Danske Bank's €1.4 billion acquisition of National Australia Bank's Irish operations.

So what is it that propelled the industry to grow last year and is it the same thing that's making the experts so upbeat about the prospects for this year?

According to Ion's Devine, last year's growth was helped by general positive sentiment among investors and supportive market conditions, such as low borrowing costs and strong property prices. Looking in his crystal ball for the remaining 352 days of this year, he sees much of the same.

Writing in The Irish Times last week, Devine said that as rising oil prices and an increase in euro-zone interest rates did little to dent confidence last year, he saw no reason why they should affect sentiment this year.

"Positive trading conditions are likely to continue over the coming months," he said. "Ireland is quickly establishing itself as a favourable place to do business."

Devine believes that as the Irish economy matures and becomes less dependent on foreign direct investment, so the importance of private equity will increase, in particular in the development of Ireland's small and medium-sized business arena. Ireland has plenty of small companies, but mergers or acquisitions are needed to help some of these firms become medium-sized companies and in turn help an even smaller number of those become larger still.

Enterprise Ireland has even set up a special unit to achieve this aim of helping small indigenous Irish companies grow. However, they may not need to do it all themselves. As more private equity backers become involved in the Irish market, as has been the trend during the past year, the potential for these companies to move out of their comfort zone increases.

Aidan Walsh, partner in charge of corporate finance at PricewaterhouseCoopers in Dublin, says he expects to see an increase in the number of mid-sized deals in the €50 million to €200 million bracket this year, as well as continued activity from building materials group CRH and food group Kerry, both of which have been known in the past for being particularly acquisitive.

According to Devine, the climate for deal-making is healthy across all sectors. "As with 2004 and 2005, inexpensive debt, low inflation, healthy economic growth and good management teams continue to shape out business landscape," he says, adding that concerns about social partnership within Ireland and interest rates on an international level do have the ability to dampen some of this optimism.

Despite these concerns, he believes M&A activity will be characterised by a small number of flagship deals and strong valuations. Lloyd Vassel, an analyst at M&A website Mergermarket. com, agrees that appetite for M&A activity is rife. He says he expects to see an increase in deals in the Irish financial sector this year, although he also points out that because Ireland is a relatively small country, some companies and investors may have to look overseas for some of their expansion opportunities.

So there you have the outline of what happened in 2005 with regard to M&A activity and now it's your turn to keep an eye on what happens in 2006. Most deals hit the papers long before the takeover or merger happens and you can often gauge investors' confidence in whether a deal will go through by the impact on the price of the group's shares.

Watch out for news from companies, such as CRH, which last week updated the stock market on its recent acquisitions. Another one to keep your eye on is telecommunications group Eircom, which, having spent €420 million buying mobile phone operator Meteor, became a takeover target at the end of the year. In a buoyant market, life is never dull in the corporate finance arena.