by CIO Staff

How a CIO Saved His IT Staff from Layoffs

Apr 23, 2010
Data CenterERP Systems

As Fleetwood Enterprises went through bankruptcy, its CIO hatched a plan to save his employees’ jobs by selling the IT department to a vendor.

Not until filing bankruptcy papers and trying to sell off parts of the company did Fleetwood Enterprises realize the value of its IT group. And the value of keeping it intact.

The maker of recreational vehicles and modular homes was a powerhouse in the 1990s, but by 2000, Fleetwood’s revenues had peaked at $3.7 billion. As domestic manufacturing costs rose and two downturns curtailed consumer spending, profits steadily dropped. Despite culling product lines and laying off hundreds of workers, Fleetwood lost money every year from 2001 on.

In March 2009, management finally cried uncle, filing for Chapter 11 with plans to sell off as much of the company as it could. Then Larry Smith, Fleetwood’s vice president of IT, and his 32-member IT staff took center stage with a plan to sell the IT group—software, hardware and staff—to a third party. The business decision made it possible for Fleetwood to sell its manufacturing lines and begin to pay its creditors while preserving jobs. Potential buyers had said, “If we can’t make IT work, this deal’s off,” Smith recalls. “I was in the room when they said that.”

The Value of IT

The buyers needed access to historical data and business processes, along with IT services, in order to run manufacturing operations during the transition. Fleetwood had integrated systems, such as billing and human resources, common to both of its manufacturing units, making it impossible to split RV-related IT from housing-related IT without spending money it didn’t have, court documents say.

But if Fleetwood sold its IT group to a vendor, the vendor could sell technology services to the new owners. En Pointe, a services firm, bought Fleetwood’s IT group for an undisclosed sum. The deal provides IT to all parties and keeps Fleetwood’s technology staff together in full-time jobs with equivalent salaries and benefits. According to bankruptcy documents, salaries for the 33 IT professionals En Pointe hired from Fleetwood total an estimated $3.9 million. Fees paid to En Pointe for IT by the new owners of the RV and housing groups, plus the Fleetwood estate, amount to $6 million in the first year. That makes the IT group worth roughly $9.9 million. The RV and housing groups sold for a combined $62 million.

The arrangement also allows for up to $400,000 to flow back to Fleetwood this year—a cut of the money En Pointe makes providing IT services to the new housing and RV group owners. That will help Fleetwood retire more debt. Plus, software that Smith and his team built for Fleetwood to communicate with its dealers is being turned into a product that En Pointe plans to sell to other manufacturers.

Especially satisfying to Smith, who is now vice president of En Pointe’s application services management practice, is that more potential buyers—a dozen—lined up for the IT group than for either of Fleetwood’s main businesses. They ranged from infrastructure vendors that wanted the company’s data center, which was stocked with Hewlett-Packard servers and Cisco telecommunications equipment, to consultancies that wanted the staff, who are experienced with JD Edwards, Siebel and Oracle software.

A Future for Employees

The people best suited to provide IT to any new owners of either product line were Fleetwood’s existing technologists. But Smith also felt a personal obligation to get the best outcome for the people he managed, he says.

When a company liquidates, employees who have stayed until the sad, stressful end usually lose their jobs. Then they scatter, trying to line up new work, says Michael Thompson, president and CEO of Interlude Empowerment Coaching. The deal to sell Fleetwood IT as a unit was “sharp,” he says. “Taking the uncertainty out of it lets people do their jobs well during the winding down of a company.”

A rough economy often inspires creative deal-making, Thompson says. At first, however, Smith had a hard sell. “It took a lot to convince Fleetwood executives there was value in us in several ways. It’s what I can hold my head up high about,” he says. “We sold the IT department.”

Doing so meant the staff stopped worrying about their futures, says Donna Jamieson, who was an IT manager at Fleetwood responsible for the housing division.

“Everyone was hopeful we’d come out of Chapter 11, then not so hopeful,” she says. “We saw people in IT leave, looking for stability.”

Jamieson, who had been with Fleetwood for almost 29 years, chose to stay and is now a client relations manager at En Pointe. Being up for sale was exciting, she says, but not as much as getting a job with more responsibility at a growing company. “It’s an interesting twist.”