queensland aquisiton, page-19

Belair22

I am not sure of your experience in equties, however after reading your comments I can only conclude that it is limited.

Companies go through varying stages through there lifecycle. The stage that Tele-IP is currently at can only be described as transformation through to the formative stages of being a profitable business. As money does not grow on trees, nor is it legal for companies to print money, you are then confronted with the following options in order to grow a business:
1. Cash flow – this is currently not sufficient to fund acquisitions;
2. Finance – at an stage of a business life cycle you do not want to be at the mercy of your financiers, even more so you do not want to be held back at the starting block.
3. Equity Funding (issue of shares) – this is a strategy use by just about every company be it listed or unlisted, be them big or small. This type of funding is very much dependant on the economic cycle. Currently we are in growth mode and as such equity funding is well received, that is provided it is for the right reason. Many of the Aussie blue chip companies (resource and industrial) in recent times have preferred Equity funding over direct finance. A common saying during growth times is that Equity Finance is the cheapest form of finance.

Traditionally the companies that look use Equity Funding is for a viable venture i.e. EPS accretive, which result in share price appreciation. This is done via a placement, rights issue, IPO etc.

To suggest that TEE is issuing shares for no reason, this is simply WRONG. The Victorian acquisitions which was completed by cash (via a placement), deferred settlement of cash and shares issued to the vendors result in TEE now being cash flow positive (this is based on the financial information in the 2nd Qtr Report). In the short term that has obviously been beneficial as per the share price appreciation. The biggest risk here was the integration of 2 distinct businesses into 1. This is by no mean fate complete though the signs are positive.

The most recent purchase of the QLD business will obviously been completed in a similar way to the previous acquisition. However this business does not nearly have the same integration risk as it is the only one QLD. Again like the previous acquisitions the key personnel are remaining within the business. I would also expect this to contribute towards the cash flow positive within the first 3-6 months.

I would very much anticipate that as cash flow picks up that the company will undertaken expansion from cash reserves and/or financing. However I would anticipate that this would be 6+ months away.

The company is very much aware that shareholders of which they are part off, will allow for the dilution of existing shareholder value.

You are very much correct in that the full extent of integrations do take time, however the benefits of such a move are often felt gradually as we have seen to date.

Another key factor is that private businesses are generally purchase for 2-5 times earnings. Where as listed growth companies trade on earnings of 12+times.

Just my 2c worth

Cheers

TAB1