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 …show more content…
Then, we took the average of D/E ratio (0.21). And we used the corporate tax rate in UK in 2006, 30%, because OHM is from UK. Since the beta of OHM is 0.76. We use the equation, BetaU = BetaL/[1+(1-Tc)x(D/E)], to get unleveraged beta of 0.66 b. For the tech comparables, we took the same process. We first got their D/E ratio at IPO. And we assumed the Tax rate is 30% for all three companies. From the same process mentioned above, we took the average of the three unleveraged beta, which is 1.11. (2) D/A ratio: We use the information in Exhibit 11. We used the data of total liabilities as debt and shareholders earnings as equity. Specifically, we used the data from 2007e to 2009e because those numbers are after IPO which are more appropriate in this case. We took the average of them, and we got 0.19 as D/A ratio of emgs and 0.23 D/E ratio. (3) Relevered beta: As we have two unleveraged beta from the previous process, we would get two different betas. Because we’ve already calculated the D/E ratio of emgs and the tax rate of Norway is 28%, using the equation BetaL= BetaU*[1+(1-Tc)x(D/E)], we got 0.78 based on OHM and 1.29 based on tech comparables. (4) Then we assumed the market premium is 7%. And risk free rate is 4.458% which is the ten-year US bond yield because for Warburg, their returns are calculated in US. The cost of debt is Europe Corporate Lending rate, 5.14%. Then, we got WACC 8.72% from