Jefferies, Quarterdeck Take Advantage of Defense Rise
Wall Street West
by Benjamin Mark Cole
Jefferies Group Inc., already having a solid year on Wall Street, recently announced a joint venture with Westside finance boutique Quarterdeck Investment Partners LLC, which is known for its expertise in aerospace.
Dot-coms are dead, telecom stocks are stuck in mud, but defense and aerospace stocks are soaring, given what appears to be a brewing perma-war against terrorists and the nations that support them.
The name of the joint venture is Jefferies/Quarterdeck LLC. In a nutshell, Quarterdeck, with years of experience in aerospace and defense, knows how to invest the money. Los Angeles-based Jefferies, with an excellent roster of institutional clients and its own fleet of stockbrokers, knows how to raise the money.
Both Jefferies and Quarterdeck would insist they have independent research and capital-raising abilities, but basically this is a marriage of brains (Quarterdeck) and brawn (Jefferies).
The market for defense-related initial public offerings is better now than at any time in memory, said Jon Kutler, Quarterdeck’s chairman and chief executive. “We’ve seen more deals and IPOs filed (with the Securities and Exchange Commission) and completed within the last 90 days than we have in the last 10 years,” Kutler said.
The venture boasts lead-manager status on one of those, the $97.8 million IPO filed by Dayton, Ohio-based defense contractor MTC Technologies Inc. on May 3.
In fact, the new defense environment may be even more conducive to investment banking than the old Cold War. In the days of the Iron Curtain, war planners considered massive tank battles in Eastern Europe and H-bombs. Not the sort of stuff emerging growth companies typically get involved in.
But today, the U.S. military is open to new weapons ideas, such as unmanned reconnaissance and weapons systems. The technology for drones that spot and fire upon enemies is heavy on advanced electronics, software and radar-evading plastics areas in which small outfits might make contributions.
With defense hot, Kutler has been hiring, recently adding Terry Lyons, formerly chief financial officer at Teledyne Technologies Inc., and Michael Misantone, a former Credit Suisse First Boston banker.
Jefferies’ traded in the $46 a share range last week, near its all-time high, and up nearly 50 percent from the year-earlier level.
Hiring Binge
Seidler Cos., formerly known as Seidler Amdec and founded in 1969 by Roland Seidler, has hired no less than six former bankers and analysts from Roth Capital Partners, the Newport Beach brokerage.
Joining Seidler will be John Reid as managing director of capital markets; Dennis McCarthy and Brian Mulvaney as managing directors of investment banking; and David Bain, Patrick Winton and Jason Sam, each as managing directors of equity research.
Joseph “Jay” Sherwood III, managing director of investment banking and merchant banking, said that Seidler has been expanding, recently opening offices in Seattle, Irvine and Scottsdale, Ariz.
Sherwood, formerly with Drexel Burnham Lambert, and before that (for those with long memories) the long-gone Bateman Eichler, Hill Richards Inc., says the time to hire is now, as many good bankers are finding their perches yanked out from underneath them.
Coming and Going
Like many securities-industry lawyers, Charles Kaufman of Sheppard Mullin Richter & Hampton has been deluged by public company clients wanting advice on their obligations under evolving SEC rules.
There are lots of details, but in a nutshell, companies must state more clearly what their capital resources are and their liquidity outlook is, in case they run into trouble in coming quarters. That doomsday scenario should be presented in something industry insiders call the “MD & A;” section of a 10Q (quarterly financial report) or 10K (annual report). MD & A; stands for Management Discussion and Analysis.
“In particular, we are advising that the management discussion section spend a lot more effort on the risk factors facing a company,” Kaufman said.
In the past, this often amounted to boilerplate, with words to the effect that “things may not go as planned.”
Kaufman is advising companies to offer specifics of when lines of credit will snap, or when a company will run out of money, if sales dip or some other shortfall crops up.
Time was when securities industry professionals used to be split into camps: the bankruptcy and turnaround guys, and the capital-raising troops. But clearly, it’s better to be positioned to catch clients coming and going.
So in addition to helping companies sort out SEC reporting obligations, Kaufman will help companies through an accelerated bankruptcy proceeding known as a “363A transaction.” In such a deal, a bankruptcy judge quickly stamps approval of the sale of a Chapter 11 company as a whole, ongoing entity, rather than having creditors haggle over a carcass growing more rank by the day.
Creditors take equity in the ongoing concern (usually with new management in place) and hope for better times ahead.
Such companies often aim to become listed and trading again on the stock exchanges, something perfectly legal if they continue to file quarterly reports throughout bankruptcy, said Kaufman. “They don’t have to register again. Creditors want that because then they gain liquidity again (on their debt),” he said.
Quick Takes
Public companies are taking more steps to tell their story to Wall Street. Burbank-based Walt Disney Co. has an online Investor Relations newsletter available at its Web site and e-mailed every six weeks but only to big investors. The three million smaller, individual shareholders can’t access the newsletter, or receive the e-mails, as that would create web logjams, company officials said…
Los Angeles-based X-Laboratories, which develops tech intellectual property, added Brad Grob and Jim Delany as “entrepreneurs in residence.” Grob is managing partner of Cambrix Consulting and former executive vice president of marketing for Emblaze Systems. Delany is the CEO of Broadband Highway, and former chief operating officer of Digital Communications Group.
Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at
[email protected].
