Warburg Pincus and Emgs: the Ipo Decision Essay

2010 Words Sep 25th, 2012 9 Pages
Warburg Pinus and emgs: The IPO Decision |

Executve Summary
With wide geographic and sectorial reach, Warburg Pincus had a flat structure and decentralized deal approval process. In the first part of our report, we commented on the merits of these features and how they helped the group make investments. Warburg Pincus acquired emgs in 2004 and was considering its IPO. Throughout time, Warburg Pinus had added real value to emgs via operational, financial and strategic improvements. We believed that emgs was ready to go public and will give our views on the two options of listing location. Basically, the NYSE offered higher liquidity and better valuation but, at the same time, imposed higher cost in terms of reporting, investor
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Therefore, if the oil prices fell, emgs was subject to a greater risk of being caught in a general sell-off. Secondly, it was easier to find suitable comparables and higher valuation in the U.S. due to the market’s size, liquidity, variety and regulatory aspects. Third, Warburg Pinus had strong reputation and massive leading experiences in U.S. market while being less active on European exchanges. In additionally, a U.S listing could promote emgs’s prestige and credibility as the company expanded to broader market. Last but not least, if emgs was about to make acquisitions, U.S.-listed shares would offer better currency. Although the U.S. listing could lead to higher costs, both upfront and ongoing, more complexity in terms of accounting and regulations, and management distractions which might not be an issue in the Oslo community, we thought that the benefits still outweighed the drawbacks.

In order to value emgs, there are two key issues: appropriate WACC and reasonable FCFF projections. We assumed the D/E ratios are constant to both emgs and comparables for convenience. Since it’s hard to define which sectors emgs belongs to, we calculate two WACCs based on the information from OHM, and the information from three tech comparables. 1. WACC (1) Unlevered

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