INFO'PRODUCTS MERGER

Early signs suggest Compel's union with Info'Products isn't quite a match made in heaven. When Info'Products' previous liaison with Simmons Magee is recalled, the chances of both parties enjoying marital bliss look even worse.

The marriage in March 1997 of Dutch reseller Info'Products andite a match made in heaven. When Info'Products' previous liaison with Simmons Magee is recalled, the chances of both parties enjoying marital bliss look even worse. Simmons Magee ended in a battle to rival the War of the Roses. After the acquisition, Info'Products began to suffer a staff haemorrhage that continued unabated. When Compel - a large reseller with a track record of successful acquisitions - purchased the company at the beginning of December, it looked set to stem the flow, but since then another 150 staff have been made redundant.

The price paid by Compel - nominally #1, with the assumption of Info'Products debts of #10 million - underlined publicly the extent of Info'Products' financial difficulties. Last year, PC Dealer forced Info'Products to admit that it had become a loss-making company in 1997, accruing a loss of #7.4 million on turnover that had gone down to about #93 million down from more than double the previous period (PC Dealer, 29 April 1998). It is late in filing its reports for 1998 - the official reason given to Companies House for the delay was 'overseas business interests and activities' - but estimates are that the company has lost at least #10 million over the past two years.

Info'Products UK started life as Essex Computer Centre in 1982, under Gerry Redman - who was to run the company for a further 12 years - and his business partner Chris Rigler. In 1988, Redman and Rigler sold the company to Systems Reliability for #6 million. It was merged with another company, Fletcher Dennis Systems, to create Corporate Computers.

In 1990, under the auspices of Systems Reliability, Corporate Computers - by then a flourishing dealership - began to suffer as the recession hit. It was, in Redman's words, 'going down the pan' and he set about saving the business by looking for a buyer. The knight that charged to Redman's rescue was Dutch group VRG (which later merged with KNP BT).

VRG had a Dutch computer reseller subsidiary called Info'Products.

On the face of it, the group was poised to grow steadily throughout Europe, says Redman. 'It was excellent because it made us one of the first pan-European companies in ownership terms. Corporate Computers bought a French company called AGR in 1992 and by this time we had about 2,000 staff across Europe. The goal was to be number one in Europe.'

But by this stage, the tensions between parent company VRG and Corporate Computers were beginning to make themselves felt. Redman believes the driving force for growth within the company was coming from the UK, but that the Dutch were largely unwilling to share the 'vision'.

'I was the sole representative of the UK arm of the business on the board,' says Redman. 'In theory, I was supposed to be steering growth plans for my division but there was no unified board-level strategy. The management styles of the countries involved were very different from one another and the board failed to put in place any sort of long-term strategy to grow Corporate Computers.'

The turning point for Redman came when he negotiated a strategic relationship with US company Entex, to give the business better access to global markets.

'I think the Dutch saw that the UK subsidiary - by now called Info'Products UK - was leading the business and they didn't like it,' he says.

In 1994, Redman sold his share of Info'Products, taking a year's break from the industry before setting up ISP Netforce in 1995. John Trueman succeeded him as managing director. Redman believes that after own his departure, Info'Products UK lost control of its own destiny. From this point, he says, KNP BT made decisions with little thought as to what was appropriate for the UK market.

Frenetic merger activity was the norm for the UK channel in 1997 - in the first two months of the year, 14 channel companies sold out to larger UK or European rivals. In March 1997, Info'Products bought out Simmons Magee, closing the reseller's Basingstoke and Richmond offices.

Even after two years, bitterness concerning the office closures is still close to the surface. Depending on who you talk to, Info'Products waded in like John Wayne, laying waste to the culture of an entire company and its staff - or Simmons Magee was stubborn and determined to make the merger fail.

Tim Hall, who had been marketing director at Simmons Magee for nearly 10 years - working at the right hand of managing director Simon Ognall - says: 'There was a huge clash of cultures involved and Info'Products made very little attempt to acknowledge this fact or deal with it.'

He adds that the Info'Products staff got off to a bad start: 'Simply presenting a human face can often allay fears. But the impression given was that this company was aloof and didn't care. Things went from bad to worse.'

Other ex-Simmons employees take a stronger line. One senior ex-staffer, who does not wish to be identified, says: 'If you were looking for a case study on how not to take over a company, you couldn't do better than this. It was an absolute human resources disaster.'

Unhappiness among Simmons Magee staff concerning the way their jobs were handled led to a staff exodus, beginning with Ognall and Hall in April 1997 to Bytes Technology Group. Shortly afterwards, financial director Simon Hoskins also resigned from Simmons. Even at the time, Ognall made no bones about the fact that he felt he was being eased out, telling PC Dealer: 'I'm used to running the show and Trueman runs it at Info'Products.'

Morale sank among the former Simmons Magee staff. Howard Dickel, ex-director of business development, who came from Info'Products at the time of the merger, concedes that marginalising Ognall was a mistake: 'Ognall was regarded by the sales and marketing people within Simmons as a bit of an icon, a man who could make things happen. After he left, a lot of the Simmons employees lost motivation.'

Over the next 18 months, Info'Products was to lose 11 key senior staff, including two managing directors - John Trueman in January 1998 and joint managing director Huib Winkel in August; and two sales directors - Andrew Douglas and Norman Kough. Next to leave were Simon Norris, human resources manager; Alan White, head of product strategy; Scott Pheby, financial director; and Richard Hazel, project management director. By the time Compel took over last December, the only remaining senior staff member from Simmons Magee was installations manager Brian Wathen - who has since left.

At the time of the Info'Products acquisition, none of the Simmons Magee staff - not even Ognall - was offered a seat on the board. Disputes over job allocation led to several ex-Simmons staff taking Info'Products to industrial tribunals, some of which are understood to have been settled out of court.

Alastair Mutch, who previously headed Simmons Magee's consultancy services and now works for Sun Microsystems, claims that Info'Products allegedly breached both UK and European law.

According to Mutch, he and Dickel were on a similar level of seniority, although their jobs were not directly comparable. While Dickel was made business development director, Mutch was offered the role of technical consultant - a role he believes was 'two rungs down from what I had been doing'. Mutch sued Info'Products and the company eventually settled the case out of court.

But a senior member of the Info'Products board tells a different story: 'We looked to be a kind acquirer, but we were hated by Simmons staff from day one. A couple of people were determined to be as obstinate as possible, agreeing to the terms before the takeover and then stirring up trouble afterwards.' A senior source says Ognall and Hall failed to tell their own employees about impending staff cuts to deflect blame onto Info'Products.

Commenting on this remark, Ognall told PC Dealer: 'That's absolute rubbish.'

Trueman is particularly critical of Ognall's handling of the situation: 'Simon was given the role of handling the transition. We tried to handle it in a mature way and he tried to carve a niche for himself without consulting anyone else.'

Conflict within the merged company did not make for a healthy business environment. Over the first six months, a number of high-profile Simmons Magee accounts were lost, notably the lucrative Citibank account, worth an estimated #12 million, which went to Computacenter. A further bone of contention was the loss, a year after the acquisition, of Simmons Magee's Compaq accreditation - one of Simmons' original selling points from an Info'Products' perspective. Many feel the accreditation went by the wayside because of the loss of staff working on the account.

It can be argued that such difficulties are the occupational hazards of an acquisition. But more serious rifts began to appear over the merged company's sales strategy. Under the guidance of Entex, Info'Products had begun to evangelise the move towards services provision. In late 1997, a business unit was set up to look after total cost of ownership (TCO) business and the sales and support teams were steered away from pure product-shifting towards providing more managed services.

Products such as a yearly fee-based payment structure for licence upgrades, network management, maintenance and other value-added sales strategies were high on the agenda.

Dickel, now managing director of Summit Management Solutions, as Info'Products' business development director was one of the driving forces behind this strategy.

He says the Dutch board was sluggish in its response to this UK-led approach.

'The desire among myself and my fellow directors was to develop a services and solutions-led business. It was a fairly fresh concept in the UK, which is about a year-and-a-half ahead of the Dutch market. I think the Dutch saw it as a nice luxury, but not core business. I saw it as pretty critical.'

A lack of support for the TCO concept, combined with a cost-cutting drive, meant that service-led sales suffered at Info'Products instead of gaining a boost. Rob Woolley, who worked in services sales, resigned when, as he describes it, 'the whole services arm was totally trashed'. Sources claim the loss of many staff in the maintenance division over the course of 1997 and 1998 was largely due to a policy of cutting bottom-line costs, with no thought for future growth.

By now, the company had growing financial difficulties. By year end 1997, Info'Products made a loss of #7.4 million. Staffing problems in the wake of the Simmons acquisition contributed to this figure; sources claim that over the course of 1997, Info'Products UK spent huge amounts on recruitment.

Other ex-employees put the losses down to incompetence on the part of the directors. One says: 'There were too many egos at board level for there to be any cohesive unity.'

One senior staff member on the Info'Products side claims the company inherited an inefficient infrastructure from Simmons, with over-staffing rife and thousands of pounds worth of dead stock. Others claim the management team was fast and loose with cash. 'If someone had a business meeting at Chelmsford in the morning, they'd be put up overnight in a hotel,' says one.

It could all be academic, according to one observer, who claims Info'Products had been losing money even before the Simmons takeover. In February 1998, the company's financial woes started to come to the surface when the management team was overhauled. After the departures of Trueman, Pheby and Douglas, it became public that there were problems. As extensive research by PC Dealer revealed, Paul Morgan, recently appointed finance director, admitted the accumulated loss over the past two years was close to #10 million, attributing the loss to the fact that 'the management team at that time hadn't controlled several areas of the business, such as inventories' two months later. In a further cost-cutting exercise, the company outsourced three significant areas of customer services - field maintenance, warranty and engineering workshops.

By August 1998, morale at Info'Products was at rock bottom. With the positions of human resources director, sales director and business development director still vacant, John Lowry became managing director, taking over from interim incumbent Winkel. At the time, insiders commented to PC Dealer that the company had little credibility with suppliers, customers or staff.

In November 1998, Info'Products delayed filing its annual results for the year ended 31 December 1997 for the second time in a year.

Following months of speculation, Compel arrived on the scene in December 1998. The management announced there would be broad-scale staff cuts, but many of them would be put into place by Info'Products before the takeover. Compel says it will run Info'Products - to be known as Compel IP - as an independent company within the group until July 1999, at which point it will be absorbed fully into the company's desktop division.

For many Info'Products staff, the takeover raises the spectre of unpleasant ghosts. Many resigned as details of redundancies began to trickle through.

By the end of January, at least 150 staff had been made redundant, with Info'Products' City office reportedly running on a staff of as few as four people. A group of ex-Info'Products staff are understood to be considering issuing proceedings against their employer for alleged breaches of UK and European employment law.

The potential for a repetition of the Simmons Magee debacle is not lost on Compel senior management. Neville Davis, chairman of Compel, acknowledges that 'the acquisition has been a painful process until this point', but claims it is an inevitability that an acquiring company must make cuts and that Compel has employed a team of specialists to make sure the scenario isn't repeated. He believes Compel has learned lessons from Info'Products' failures at handling the finer points of a merger which won't be repeated.

Davis says he is confident that the redundancy process under Compel management was handled in a way that was 'legal, decent and fair'. He also says he has acquired 'some very strong senior people, who will be deployed across the group. What we have found is that the people in senior roles are good, so there won't be a need to put in vast numbers of Compel people.'

But employees made redundant in the last wave of cuts are less sanguine.

One former senior employee says the Compel takeover is virtually a carbon copy of the Simmons Magee acquisition: 'The way it's been handled is absolutely disgusting. Compel seems to be shedding staff within certain salary brackets.

It's quite noticeable that the people who have gone are in support functions and in high-earning brackets. I was told on my departure that my salary package was in excess of what Compel could deliver.'

The ex-employees understood to be preparing their case, led by former Info'Products legal adviser George Fodor, are alleging that Compel has breached European and UK employment law by making more than 100 staff redundant without a 90-day notice period. In its defence, Compel is claiming that because the redundancies come from difficult geographical areas, it is not making the redundancies from a single company and has not breached any law. Compel maintains that the first wave of redundancies had already been announced by Info'Products before the acquisition was concluded.

Compel is a large corporate reseller with a history of successful takeovers.

Even those who oppose the acquisition believe Compel will integrate Info'Products swiftly. The same source who describes Compel's takeover as 'disgusting' also believes the management team will bring the company back into profit quickly. In fact, Compel has set itself a target of turning in a profit by the end of June.

Observers point out that Info'Products still has an impressive customer base and net assets estimated at about #28 million. Dickel comments: 'Info'Products has a strong reputation in the finance sector. The company is close to the City and it brings a good logistics facility with a fantastic warehouse in Chelmsford.'

When PC Dealer contacted Buhrmann, the previous owner of Info'Products, a representative of the Dutch company said it did not feel that it would be appropriate to comment on an organisation that it no longer owns.

For its own part, Info'Products gains the financial security of belonging to the UK's second biggest reseller. It's significant that Redman, founding father of the company, regards the goings-on with a degree of nostalgia, conceding that the future of his 'baby' lies with Compel. But is this takeover too jinxed by the disasters of the preceding one to allow for success? Only time will tell. For now, it would appear that Compel has been doing its homework and is prepared for the fight ahead.