Warburg Pincus and Emgs

9-807-092

REV: APRIL 2, 2008

FELDA HARDYMON

ANN LEAMON

Warburg Pincus and emgs: The IPO Decision (A)

On a gray morning at the end of November 2006, Jeffrey Harris and David Krieger, managing

directors in Warburg Pincus’s energy practice, sat in a cab mired in London traffic on the way from

Heathrow. They had just arrived for a two-day “beauty contest” to choose a group of investment

banks that would take the Norwegian company Electromagnetic Geoservices AS (emgs) public.

“There are basically three questions,” mused Harris. “Where do they think we should list, what do

they think we can get for valuation, and when do they think we can do it?”

“I think there’s one more,” said Krieger, “do they understand emgs’ business model enough to

convince the equity markets?”

In 2004, Warburg Pincus had acquired emgs from Norway’s state oil company, Statoil. emgs had

developed seabed logging (SBL), an innovative technology that allowed oil companies to determine

the presence of hydrocarbons (oil and natural gas) in deepwater formations prior to drilling. Previous

technologies, primarily three-dimensional (3D) seismic mapping, allowed explorers to see the

potential formations that might trap hydrocarbons in the seabed, but they could not determine with

much certainty whether there were fluids in these formations or if those fluids were water or the

more valuable hydrocarbons. The cost of drilling a well in deep water (water depths greater than 300

meters) ranged from $20 million to $100 million. emgs’s patent-protected technology, while

embryonic, increased the probability of correctly assessing the presence or absence of hydrocarbons

from an average of 25% to more than 90%, before drilling a well. Since 2004, the company had grown

from an early stage money-losing company “having a vessel that worked only on Tuesday” to

operating four vessels, with estimated net profits of $17 million on expected 2006 revenues of

approximately $110 million. The...