M&A expert takes flyer on aerospace/defense firms.

Kutler creates investment bank/venture capital firm

A former mergers and acquisitions specialist at First Boston Corp. has started his own investment firm to recapitalize, form or buy new or distressed defense and aerospace companies.

The new firm, located in Century City, is called Quarterdeck Investment Partners Inc. and is headed by 36-year-old Jon Kutler, a graduate of the U.S. Naval Academy and Harvard Business School.

Quarterdeck is believed to be the first private company to specialize in providing recapitalization and venture capital for defense and aerospace businesses in the Los Angeles area.

What Quarterdeck does is provide funds to form spin-off commercial ventures from defense and aerospace companies, or to recapitalize shrinking Pentagon or space-agency contractors.

Quarterdeck is also interested in acquiring -- through leveraged buyouts -- distressed defense and aerospace operations that are on the decline because of the cuts in military and space program spending, said Kutler.

"It's an idea that makes logical sense. The defense industry is going through changes. There is excess capacity and there's going to be consolidation," said Richard Snyders, president of Van Deventer & Hoch, a money management company based in Glendale.

"There are certainly pockets of capital available for such ventures," Snyders said.

Kutler, who spent six years in the Navy before going to Wall Street to work at First Boston, would only say that capital for possible acquisitions will come from "private investors that I have come to know over the years."

One financial expert who did not want to be identified said Quarterdeck's primary source of capital is a Mexican entrepreneur who is currently involved in the possible takeover of a major bankrupt company in the United States. Kutler denied the claim.

He said long-term financing for the ventures may come from large pension funds like the California Public Employees Retirement System (CalPERS), large insurance companies or other corporations that are based in the state because Quarterdeck will initially confine its activities to the Southern California area. He emphasized the new venture is not going to be funded through public offerings or investment opportunities sold on the open market.

One local financial expert said entrepreneurs who go against the tide are often times successful.

"They're called contrarians and a lot of contrarians have made a lot money," said David Millison, head of research with Dabney/Resnick & Wagner, an investment banking firm in Beverly Hills.

"The theory behind this new company, which I know, is that while everyone else hates defense companies as an investment, Quarterdeck is looking for opportunities in the business," said Millison.

Kutler, who previously was managing partner of Wasserstein Perella & Co. in Los Angeles, said he has been involved in selling several aerospace companies as a direct buyer, lender or negotiator.

He said between 1988 and 1992 he worked on the acquisition by Wasserstein of Pneumo Abex, a $1.2 billion aerospace company, and Wickes Cos., a $2.7 billion-in-annual sales retail business. He also said he was involved in Lockheed Corp.'s acquisition of Sanders Associates.

"What we're doing," said Kutler in an interview, "is funnel financial expertise and new capital from the private sector into the aerospace and defense industries in such a way that will help preserve jobs and in some cases create new jobs while at the same time providing a financial return for investors."

He said Quarterdeck is interested in recapitalizing or buying smaller defense companies or divisions of major contractors that are shrinking due to federal budget cuts.

"A lot of these big contractors are letting these divisions go," Kutler said. "They're not putting any money into them and they can't sell them because potential buyers have been scared off by all the regulations concerning government contractors.

"We're willing to take a look a them and either invest in them or buy them."

Kutler said Quarterdeck is interested in companies or divisions of major contractors that could be acquired for less than $100 million. He said it's also interested in providing venture capital for new commercial companies that could be formed with technology developed by defense and aerospace firms.

So far, only public money has been available for conversion by defense and aerospace companies to the commercial sector.

"There has been a lot of discussion about technology transfer and so far it hasn't worked. What we are willing to do is take technology that defense companies have put on the shelf, provide the seed money and grow the business," he said.

Kutler described three basic functions of the new venture:

* Specialized leveraged buyouts.

* Providing specialized venture capital.

* Acting as an investment bank.

The company will be a "vehicle to provide capital and expertise to address California's declining aerospace base," said Kutler in his business plan for Quarterdeck. "It will provide an atmosphere for current aerospace technologies to grow and prosper into new California companies and even new industries."