NexInnovations said on Thursday it would acquire specified assets of The RAM Group , a surprise move that an executive said would extend its presence in the Canadian mid-market
for IT products and services.
Terms of the deal, which will see NexInnovations serve former RAM Group customers, were not disclosed. NexInnovations is already one of Canada’s largest solution providers, having started as a wholly-owned subsidiary of EDS Corp. (formerly SHL Systemhouse) that split from its corporate parent in 2001. The company employs about 1,300 people in Canada.
Hubert Kelly, NexInnovations’s president, said the deal to acquire The RAM Group had come together very quickly over the last few weeks.
“I won’t get into the specifics, but we were made aware of the opportunity,” he said. “There are a lot of similarities in the mix of their business. They have a couple of large clients there as well. Our focus and growth has come in the mid-market in the last year.”
The move takes places only two months after Bell Canada moved aggressively into the systems integration business by opening the Bell Business Solutions division. That unit is made up of Montreal-based NexxLink Technologies, which it bought in December for $67 million; Charon Systems, which it also bought last year; and CSB Systems of Winnipeg, which it bought last month. Former NexxLink CEO Robert Courteau now runs the division.
The RAM Group was founded more than 20 years ago by Michael Schweitzer as a seller of computer ribbon, growing steadily into a channel player with more than 225 employees in six offices in Canada and annual revenues of more than $125 million. Its major vendor partners include IBM and Cisco, on whose products it had achieved Gold certification. Two years ago it scored a channel coup by helping bring SAP’s Business One, a suite composed of the SAP Business One software and a group of applications put together by Amex’s Tax and Business Services division, to the Canadian small and medium business market. Last year it ranked 12 on Computer Dealer News’ Top 100 Solution Providers list. NexInnovation ranked No. 1.
Schweitzer, who died in May 2003, was replaced for a time by his brother Alan, a former court reporter with no IT experience. Earlier this month the RAM Group’s board named David Klein, a consultant to the national solution provider for 15 years and a high-school friend of Michael Schweitzer, as president.
Kelly indicated there would be little integration of RAM’s executive team.
“I really don’t want to answer for those guys, I would say they’re moving on,” he said. “This was really a result of a restructuring at RAM.”
Klein refused to comment on the deal, referring questions to Kelly. He did say, however, that he supported the purchase.
The SAP BusinessOne partnership had opened major U.S. market opportunities at The RAM Group. In earlier interviews, Klein had said the market opportunity in New Jersey alone for the SAP application is at least the size of the entire Canadian market. Although the RAM Group has six offices in the States, Kelly said NexInnovation had no intentions of abandoning its roots.
“We will not move on it. Our main focus is in Canada,” he said, adding that no decisions have been made about the RAM’s other offices. “We’re not sure.”
Consolidation is being driven largely because the costs of hardware being sold by VARs is dropping, said Evans Research Canadian services industry analyst Albert Daoust. Software is easier to maintain and as a result resellers are finding billable consulting hours are dropping, he said.
“It’s hard to find a niche in today’s market if you’re doing much more than $60 million in annual business. A lot of companies have found a way to be consistently profitable in a range of $50 to $60 million. Once you get above that it’s hard to maintain profitability,” he said.
“The sad thing about economies of scale is it requires a great deal of skill and luck to find (them).”
Harry Zarek, president of Compugen Inc., a national systems integrator, said he was surprised at the news because he had impression RAM was doing well, although, he added, “in the last week we had begun to hear rumours they were letting people go.”
“I certainly didn’t expect anything to happen this quickly. It’s part of the overdue consolidation that we need in the industry,” he said, adding, however, that it won’t spur him to find a merger partner. Nor will the merger hurt Compugen.
“I don’t believe all of (RAM’s) customers will move over to NexInnovations, so they’ll be net new opportunities for us.”
NexInnovations has grown through acquisition before. It gained major customers such as Labatt Breweries and Toyota Motor Manufacturing in 2001 by acquiring Netigy, a company which had been experiencing financial difficulties in the U.S.