Two of the largest Irish-owned advertising agencies are in talks on a potential merger as consolidation continues to sweep the sector.

Talks between Des O'Meara & Partners and AFA Advertising are ongoing and agreement could be reached shortly, sources have told The Irish Times.

While both parties claim the talks concern a potential merger, most advertising sources claim the deal is likely to result in the effective takeover of Des O'Meara & Partners by AFA.

Des O'Meara, a long-established agency, has been under pressure in the past two years.

The firm had to lay off about seven people last year and, according to its last set of accounts (for the year ending December 2001), it made a pre-tax loss of more than €500,000.

Mr O'Meara admitted yesterday the company had been through a tough time, but he said he remained confident a merger was possible and it would benefit the company.

When asked how long the talks might take before a deal was concluded, he said: "How long is a piece of string?" He declined to comment further.

Mr Stuart Fogarty, managing director of AFA, said talks continued on a deal and the industry would find out in due time if they were successful.

Des O'Meara, similar to a lot of Irish-owned agencies, suffered in recent years because it failed to link up with any international agencies.

The company is understood to have lost accounts such as Tesco (worth about €4 million), Esat and Golden Pages.

The merger of the two would be one of the biggest deals in the industry in recent years. The last major deal between Irish-owned agencies was when O'Connor Sullivan merged with Helme Partnership nearly two years ago.

AFA has been on the Irish advertising scene for 35 years. Set up originally by Mr Aubrey Fogarty, in recent years the day-to-day running of the agency has been taken over by Mr Stuart Fogarty, his son.

According to the firm's website, its clients include Ulster Bank, Holiday World, Blackrock Clinic, Donegal Foods and several CIÉ-associated companies.

One senior advertising figure said last night that further consolidation was likely: "The whole industry is now made up of internationally aligned agencies and a small number of smaller Irish-owned ones. The non-aligned agencies really have no choice but to group together."