The RAM Group’s controlling shareholder says he was blindsided by the insolvency of the $100 million company.
In an exclusive interview with CDN, Alan Schweitzer also revealed he was at odds with company president and CEO Ken Killin.
“We had disagreements and sometimes
those disagreements resulted in sharp exchanges. In one instance, he resigned as president (in February) rather than institute strategic cost cutting measures.”
But Killin reconsidered leaving, Schweitzer said.
“Ken was a good man. He did good things for the company. As CFO (before becoming CEO) he was a magician. I have the upmost respect for Ken Killin, and how this company ended with such a colossal failure in management has me scratching my head.”
When contacted Killin refused to confirm Schweitzer’s account. He did say that he reduced head count twice during his tenure. Killin believes that RAM was unable to shift from a commodity-based business, suffering from a reduction in sales in Ontario and a drop in the Cisco business in Western Canada. It was also slow to adopt a recently-acquired SAP Business One franchise which he said was “a significant disappointment and a financial drain on the company. It was surprising and it did not help.” Schweitzer said the RAM Group stopped selling the SAP Amex Edition a couple of months ago.
When it filed for bankruptcy protection RAM was facing more than $12 million in debt. It owed roughly $3.9 million to secured creditors, including $1.2 million to Ingram Micro Canada and $2.7 million to The Royal Bank. Unsecured creditors were owed $8 million, including $2.8 million to Tech Data Canada.
NexInnovations has bought all customer maintenance and support contracts supplier contracts and goodwill for $2.25 million, to be spread over several years.
Based at the time in New York, Schweitzer took over RAM after the death in 2003 of his brother Michael, who founded the company. With no experience running an IT company, he lifted Killin from a consultant to CFO to CEO. However, according to a court affadavit from RAM chief financial officer Barry McKibbon, the trouble started in June 2004 when it lost the business of MTS Allstream Inc., cutting its annual revenue by $6 million and losing $300,000 in operating profit.
It was also losing money on the sale of some products, despite high revenue, thanks to the competitive IT market, the affidavit said.
A two-year effort to sell the American Express edition of SAP’s Business One suite in Canada and the U.S. has been a net drain on the company, McKibbon added.
The failure puzzled Bruce Stuart of ChannelCorp. Management Consultants of Vancouver, which advises VARs and vendors.
“On the surface, a $100 million company losing a $6 million client shouldn’t be a big hit,” he said. “A business of $100 million should be resiliant enough to lose six per cent of its revenue.
“This could signal the major banks taking a look at all credit they have out to reseller-type businesses,” he warned.
In an effort to face its problems RAM laid off 35 people, starting in January.
At the begining of June, David Klein, a long-time friend of the Schweitzer family who has been on and off RAM board for several years, replaced Schweitzer as chairman.
Then, on June 16, RAM hired a company that specializes in restructuring, which led to the June 23 offer from NexInnovations, one of the biggest solution providers in the country, to buy its assets.
On June 24, Tech Data and Cisco Systems stopped selling products to RAM. Others followed. “We had no product to sell,” said Schweitzer. Five days later it applied for protection from creditors. At the same time the NexInnovations deal was finalized.
“We are taking responsibility for servicing all of the customers,” said Hubert Kelly, NexInnovations president and CEO. To do so it will be taking “a good number of people” from RAM, he added.
However, a former RAM employee who spoke to CDN on condition of anonymity,
said only key sales people were taken.
Schweitzer confirmed those retained were fewer than 12, and that their main roles were for collections and network management. Before the downfall, RAM boasted more than 250 employees. It was a humbling come-down for a company that had nine offices across Canada, six branches in the U.S. and what it said was a lucrative deal to sell the American Express Edition of SAP’s Business One suite here and in parts of the U.S.
In the end, Schweitzer seemed to suggest his inexperience was costly.
“Everything had my approval,” he said, “but in hindsight it is clear the advice I received was wanting.”
Schweitzer was very disappointed that he was unable to thank the RAM employees as he was in New York when they received the bad news. Schweitzer said that he could not even e-mail them as email was cut off that day. “I’d be remiss not to mention Nancy Andreeta, Michael’s right hand from the beginning, or Susan Adam, who suffers with MS and has only recently taken significant amounts of time off due to illness. Or Phil DePaulis, admin, first Carla, who went on maternity leave. The love I was shown I’ll never forget and it was a priveledge to have been associated with RAM and these incredible, highly skilled employees,” Schweitzer added.
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