RM CEO: We didn't even try to sell PC biz before killing it
'Would have been no interest... buyers weren't plentiful'
Education tech supplier RM didn't even test the appetite among rivals or privateer equity firms to buy its flattering PC biz before murdering it because the business was only just keeping its head above water.
The long-standing system builder this week quit the business to concentrate on higher margin software and services.
Responding to questions on whether RM had tried to solicit interest in the business before it was closed, CEO David Brooks simply told The Channel "no".
"We made the judgment that a break-even business had limited appeal, serious buyers weren't plentiful, it would slow down the re-focus of the Education Technology (ET) business and that its pretty difficult to separate out the hardware only bit of the organisation," he told us.
The business was about to become a loss-making entity which would have drained cash from the group, RM adds.
The final blows for the PC unit, which built desktops in Oxfordshire and imported notebooks from the Far East that were then configured at HQ, came on two fronts: the closure of the UK.gov schools regeneration scheme, Building Schools for the Future, and the rise of the fondleslab.
BSF was canned by the coalition government in 2010, with only those contracts already dished out and those submitted getting the clearance. Only about 500 of the 3,500 secondary state schools in the UK benefited from the programme.
Around 10 per cent of the £45bn BSF budget was earmarked for IT, and the closure of the scheme meant some £3.7bn that had been up for grabs was lost to suppliers almost overnight.
RM was the biggest supplier of BSF, winning tens of contracts worth way more than £550m.
Brooks says BSF gave its PC biz economies of scale and it "made sense" to continue while it was still making reasonable profits from the hardware, extended warranties and maintenance.
"But with implementations of BSF coming off, and in the last 12 months or so the tablet side of things in education being much more the device of choice, we feel as though we have come to the point where we feel it is the right time to make that step and stop selling hardware in our business."
Obviously this leaves a hole in the market for rivals to dive in: RM assembled 140,000 desktops in Blighty and circa 90,000 of these were RM branded.
Brooks reckons many schools, "particularly secondary", are "looking at what BYOD means to them".
"The fact that more and more pupils have some form of tablet device going forward then I think it is impossible to see a world in two- to three-year time span where tablet won't play a major role in many schools ICT division."
Add a 60 per cent cut in schools' capital budgets to this heady mix and RM exes told us they were facing a perfect storm.
The last of the BSF contracts playing out this September with "very few" coming to fruition next autumn.
The closure of the PC assembly line means 300 employees have entered into a 45-day consultation period and most will have left the organisation by next June, RM confirms.
"The redundancy level isn't as high as that because we had actively been employing contractors and temps so that 300 includes contractor and temps," Brooks confirms.
This includes sales and marketing people, back office staff as well as production people. RM employs 2,100 staff in total.
The BSF closure broadly lost RM £40m in projected revenues and the closure of the PC building business will reduce sales by a further £50m. The firm expects its ET division, which has accounted for 70 per cent of turnover but only 30 per cent of profit, to be turning over £180m by 2015.
Four subs group remain in the PC-less ET division: the Services Product unit (managed services); the Digital Platform, which includes SaaS management and info systems and RM Books/ Unify; an ISP wing; and an infrastructure arm that sells network manager tools – which is RM's own IP.
"Our focus at the moment is right-sizing [ET], we've been declining in that business [because of the hardware] for three years, we are taking this step to draw a line under it, we still believe that there is a good business to be had in technology in schools," says Brookes.
"Although the capital funding has gone down significantly, the majority of schools you go into absolutely believe they need to continue to invest in technology
"They want a mixed economy of Apple, Microsoft, Android, they want a complex wireless network, they need good access to the Internet and we think software and services that will help them do which is we are strong on, there still is a growing demand for that.
"Our plan is that we wouldn't be reselling other people's hardware as a hardware led sale but if were bidding for managed services contract where the customers wants an element of hardware refresh we'd find a third party to help us fulfil that," says Brooks.
The other two divisions - Education Resources (catalogue distribution business) and Assessment and Data (e-testing/ e-marking) – account for a little more than 70 per cent of RM's bottom line.