Infinite Conferencing

What is success in webcasting and conferencing services worth?

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Entrepreneur's gut value: $15 million
Len Green's value: $10 million
Mary O'Connor's value: $10.5 million

When it comes to Infinite Conferencing, W. Keith Maddox is proud of many things. He's proud that the Millburn, N.J.-based company, which provides teleconferencing, Web conferencing, and webcast services, has gone from revenue of $500,000 in 2002, the year it launched, to $5 million in 2005. He's proud of a customer base that has swelled to some 1,300 small and midsize businesses. He's proud of gross profit margins of some 80%. And he's especially proud that he's been able to accomplish it all without borrowing a dime.

But Maddox and his partner, Deborah J. Jackson, are at a crossroads. Their company is approaching maturity, and maintaining high growth rates could mean taking some risks--such as taking on a financial partner or making an acquisition. Selling the company outright is another option, as is continuing to grow organically, without making any sudden moves. Whatever they decide, a better sense of Infinite Conferencing's worth will give the pair an edge in dealing with potential partners and investors; they'll also be smarter about evaluating any offers. And then there's simple curiosity. "As an entrepreneur, you're always wondering, what's the value of this thing I own?" Maddox says. Infinite Conferencing underwent a formal evaluation in 2004, which came in at about $6 million. The number struck Maddox as far too low, mostly because his margins are so much stronger than the industry average of about 60%. "My gut is that we're in the $15 million range," he says.

Len Green's assessment

Green first focused on where Infinite Conferencing sits in the product cycle. He was particularly drawn to its Web conferencing business--which increased from 1% of sales in 2002 to 24% in 2005. On the other hand, after researching the industry, he found at least 260 conferencing providers in the United States alone. The large telecom companies control about 30% of the market. And one company, WebEx, has captured 50% of the Web conferencing market. WebEx, which is publicly held, trades in the range of three to four times revenue. Infinite Conferencing is puny by comparison, but it could make an attractive acquisition for a large player looking to get into Web conferencing, Green thought.

He set the research aside and began his conversation with Maddox with one key question: How did he plan to handle the company's success and profits? Did Maddox plan to expand? Or was he content to stay put? It's something Green always looks for when evaluating a successful going concern: Does the owner still have drive? In Maddox's case, "I sensed a real passion for what he was doing and how he was doing it. I bet on a guy like that every time."

Green's standard approach to valuing an established firm is to take the company's present revenue and add or subtract value based on his assessment of the company's future. Green's floor value was the company's projected revenue for 2006: $6.6 million. Since companies in the phone and Web conferencing sector generally sell for about two to four times revenue, the top value that Green would consider was $26.4 million. But it's rare for a small firm to sell at such a high multiple, and Green's impression was that the real value in Infinite was not in telephone conferencing but in Web conferencing. Given that, Green decided to apply a multiplier of two times sales. That brought the number to $13 million.

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