Early last month, the head of The RAM Group handed over the job of chairman to an experienced IT executive and family friend.
“I want to secure RAM’s future by making certain RAM’s executive and board leadership is the best,” Alan Schweitzer, the controlling shareholder of the company, said
in a press release of his decision.
But six weeks later the future of the Markham, Ont. company that once had annual sales of around $90 million a year and 2,000 customers is anything but secure.
Facing more than $12 million in debt, last week the company sought protection from creditors for its Canadian and U.S. divisions under the Companies Creditors Arrangement Act. By RAM’s own admission it is insolvent.
According to court records, RAM says it owes roughly $3.9 million to secured creditors, including $1.2 million to Ingram Micro Canada and $2.7 million to The Royal Bank, and $8 million to unsecured creditors, including $2.8 million to Tech Data Canada. Tech Data president Rick Reid could not be reached for comment.
However, RAM says it has $7.6 million in receivables.
After selling its customer contracts to NexInnovations Inc., it has until July 29 to find a way to save what remains or close the company.
In a court affidavit, RAM chief financial officer Barry McKibbon said the financial 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.
In an effort to face those problems RAM laid off 35 people this year, starting in January. Then on June 16 it hired a company that specializes in restructuring. That led a June 23 offer from NexInnovations, one of the biggest solution providers in the country, to buy all customer maintenance and support contracts, supplier contracts and goodwill for $2.25 million, spread over several years.
On June 24, Tech Data and Cisco Systems stopped selling products to RAM. Five days later it applied for protection from creditors. According to the affidavit, RAM can’t meet the credit terms of its suppliers and is on credit hold with almost all of them.. At the same time as the application was made 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.
NexInnovations moved quickly to contact and reassure major clients, said Kelly.
It is a humbling come-down for a company that had nine offices across Canada and had opened six branches in the U.S. after snaring 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.
BDO Dunwoody LLP, an accounting firm, was appointed by an Ontario court judge to monitor the company and help it find a solution. Mark Chow, a senior vice-president of the firm, said RAM has by the end of the month to either create a restructuring plan, which would have to be approved by creditors, or a liquidation plan.
Ken Killin, RAM’s president and CEO, could not be reached for comment.
David Klein, who has been on and off the RAM board for a number of years and took over as chairman June 1, refused to comment on the company’s troubles, referring questions to NexInnovations and Killin. He reminded a reporter that in an interview with CDN after his appointment he said he’d be a non-executive chairman. His role, he said, would largely be as an advisor to Killin. Klein, a long-time friend of the Schweitzer family, is also a vice-president of chip-maker Cirrus Logic.
“NexInnovations is a great organization,” he said, “and I’m glad RAM will have a chance to see its legacy carried on.”
Alan Schweitzer took over the chairman’s job in 2003 following the death of his brother, Michael, who built RAM into a respected solution provider. A former New York court reporter with no IT experience, Alan Schweitzer relied largely on Killin, who had been brought into the company as Michael Schweitzer’s health declined, and Klein to run the operation.
“Alan’s decision to leave the chairman’s position and ask me to take it, in some ways as his representative, was a decision to turn the company over to the professionals,” said Klein last month.
Given Killin’s experience in the industry and the fact that he has a financial share in RAM, the chairman’s job should be a “relatively quiet position,” he added.
At the time there was no hint that the company was in difficulty. Klein did say that some parts of the business were shrinking, such as certain break-fix services.
To some in the industry word of RAM’s woes were a mixture of surprise and confirmation.
“My impression was RAM was doing very well,” said Harry Zarek, president of Compugen Inc. of Richmond Hill, Ont. Then he added, “In the last week we had begun to hear rumours in the marketplace that they were letting people go, and there were indications they were having challenges.
“I certainly didn’t expect anything to happen so quickly.”
Asked if he was surprised when told RAM’s assets were available to buy, Kelly said, “Nothing’s a surprise in this industry.”
What appealed to him, he said, is that the companies have “a lot of complementary capabilities,” including professional services, and a good Cisco Systems practice. “We do believe there’s a lot of synergies to be able to keep the customers serviced and to keep a number of the employees working, and keep what we believe is a good business that had been built up over the years.”
RAM’s SAP practice is of interest, he said cautiously. “We want to explore it to make sure we understand the full opportunity.”
However, he also said he isn’t interested in RAM’s U.S. offices and practice.