The acquisition, which is expected to be announced this week, will pave the way for eTel to float on the AIM later this year, in an IPO that could value the combined company at up to 100m. It is understood that Etel is raising around $11m to fund the EUnet deal.

About $80m in venture capital has already gone into eTel, which is chaired by wellknown Irish company doctor Bernard Somers. Investors in the company include such high-profile names as Dresdner Kleinwort Capital, Greenhill, Argus and Intel. It is understood that the fresh funding is split between an existing institutional shareholder and a new investor.

Set up in the boom times of 1999, eTel rode out the subsequent collapse in telecoms stocks by refocusing as a play on the consolidating European market. The company now provides voice, data and internet services in Austria, the Czech Republic, Hungary, Poland and Slovakia.

Etel turned its first ever profit last year on turnover of about 104m. Acquiring EUnet would boost the company's ebidta from 1m to around 10m, and industry sources said a flotation in current market conditions would be likely to value the newlyenlarged company at 80m to 100m. This would put a value of up to 25m on the 25% stake in the company still held by Melly, Somers and other top management.

Etel has indicated that the acquisition of EUnet will be a transformational deal, and it is seeking further expansion opportunities. It is also in talks to buy the fixed-line business of Austria's Tele.Ring.