The 2e2 fallout: No winners, only losers, in this end game

08 Feb 2013

By Sam Trendall
The decision by 2e2 administrators FTI to publicly ask datacentre customers to cough up thousands of pounds or see their mission-critical services turned off has largely been met with exasperation and incredulity by onlookers.

The integrator entered administration just ten days ago, and in the immediate hours and days afterwards there appeared to be much hope that something significant could be salvaged from the wreckage, saving hundreds of jobs at a stroke. But, sadly, that has not proved to be the case.

The demand for customers to shell out almost £1m just to keep services - which they have already paid for in good faith - running for another week may stick in the craw, but it is just the latest bit of unwelcome news in a story that has gone from bad to worse to even worse dizzingly quickly.

It may seem rather obvious to point out that there are no winners, but it could have all been so different. A week ago there seemed genuine hope that staff and customers could have a better future. But now all that remains is a deluge of angry creditors, talented staff in need of a new home and customers in danger of losing their money and their data.

The brand and the business as whole
For those that have written about 2e2 over the years, it is undoubtedly sad to see one of the UK channel's real giants disappear. A deal to sell off the company more-or-less wholesale was always going to be preferable solution for all parties, so it is no surprise that the administrators appeared to aggressively pursue this in the days immediately following the administration. But it is equally unsurprising - at least to this reporter - that FTI was unable to conclude such a deal, given the many alarm bells for potential buyers in 2e2's books.

The rivals
What is more galling is the inability, as yet, to sell off large contracts or business units. Thus far the only deal struck is O2's buyout of 2e2's half of the two firms' Unify joint venture. The saving of 107 jobs was welcome news, but it must be borne in mind that this represents less than one in 13 of the total headcount. Some sources report that they have been unable to strike deals for large accounts - including the transfer of scores of staff under TUPE regulations - as valuations have been too high. With staff in need of jobs and customers in need of new providers as a matter of urgency, it may seem crazy to hold out for a high price with offers on the table. But bear in mind that the administrators could find themselves in the line of fire should it be concluded that they did not realise the true value of the assets under their control. The transfer of large contracts and complex services will consequently be considerably more drawn out and messy.

The management
Rank-and-file employees will surely disagree with this, but in many ways the 2e2 leadership could be viewed as the biggest losers in this situation. It is not for us to comment on the rights and wrongs of how they ran their business, but it's an inevitability that, unlike the staff who served them, their reputations will have been tarnished.

The staff
One cannot feel anything but sympathy for the almost 1,500 people previously employed by 2e2 in this country, the vast majority of which we are sure were diligent and talented workers. Losing your job suddenly and through no fault of your own is a sickening blow with potentially huge ramifications, but top sales and commercial performers and engineers with ever-valuable skills like CCIE will surely find new employment swiftly. For less experienced staff or less skilled roles, the outlook may be much more uncertain. We can only wish them well and hope that they land on their feet sooner rather than later.

The administrators
Much like being a football referee, being an administrator must be a pretty thankless task, and you are only ever in the spotlight when things are going wrong. But FTI will not be on many in the channel's Christmas card lists after failing to secure a buyer, resulting in hundreds of immediate redundancies, and then asking customers to pay almost £1m just to keep the lights on for another week. It may well be the administrators have made every reasonable effort under nigh-on impossible circumstances. But the ill-feeling caused by the ransom note to datacentre clients was undoubtedly a PR own goal.

The customers
Users of services deemed non-critical - including flexible resourcing, business applications, unified communications and field support - are already in need of a new provider, with the plug pulled swiftly and unceremoniously on Wednesday. Datacentre clients face a £1m bill to keep services running for another week, but have been told that it may take up to four months to get their hands on their data. CIOs and procurement heads at end users face a manic week or two trying to find an alternative provider while minimising the loss of time, money and functionality.

The creditors
It is impossible to know exactly how much of a return creditors can expect, but experience tells us they'll be fortunate to receive anything more than, say, 30p in the pound. Sources report that a number of well-known channel faces are owed six- or even seven-figure sums. For the larger players, losing that kind of sum may be a real nuisance, but the bigger worry is that the collapse of 2e2 would also really endanger the future of any smaller companies owed large amounts.

The channel
We don't need to tell you what a wonderful industry ours is, full of brilliant innovation and incredible entrepreneurs. The vast majority of VARs, VADs and service providers are fantastic companies that do a great job for their vendors, customers and partners. Many would have considered 2e2 such a company, and many may still do so. But its demise does bring a degree of bad press for the channel, which is always unwelcome, and, more importantly, may impact the sentiment of private equity and other financial backers and the amount of scrutiny they place on channel firms.

We have written about many channel insolvencies over the years on CRN. It is always a sad day when a company goes under and, regrettably, we are sure 2e2 won't be the last. But we can only hope that its demise remains the biggest and the most painful. There have been no winners.

Sam Trendall is special projects editor at CRN

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