capital raising

Whilst profit-taking is going on for much of today, I wanted to share my simple views on the topic of capital raising.

In my mind there are two occasions when a company raises capital:
1. raise funds because we want to grow the business;
2. raise funds because our existing business is not doing well.

In the 1st instance, dilution is not so much an issue, because the pie is getting bigger in the long run and whilst there are going to be more shares, the net share of the bigger pie would stay/grow instead of shrink.

Staying the obvious I think SHP is in the 1st instance here. Having said that, there are other factors at play e.g. VWAP, growth profile and earnings capacity of the acquisition etc.

A case in point is a growth by acquisition story in another sector (I don't own any and no intention to cross-promote); see the cap raising prices and gradual increase of share price over the course of 8 months:

2013
6 February – raised $35m in equity @ $1.45 to fund more acquisitions
19 February – bought 12 centres for $18.7m @ 4xEBIT
8 March – bought 5 centres for $6.4m @ 4xEBIT
15 April – bought 2 centres for $4.8m @ 4xEBIT
30 April – bought 3 centres for $3.3m @ 4xEBIT
11 June – bought 17 centres for $24m @ 4xEBIT
7 August – raised $70m senior unsecured notes to fund more acquisitions
26 August – bought 5 centres for $4.6m @ 4xEBIT
27 September – bought 29 centres for $42.6m @ 4xEBIT
1 October – raised $80.6m in equity @ $3.10 to fund more acquisitions

http://rogermontgomery.com/g8-education-update/

Interesting times ahead but still a buy from me.

As always open to any thoughts/comments.