Ebb & Flow

Having raised money for its shell company via an IPO in August, Ithaka (ITHKU) is now doing what it was designed to do: find a private healthcare company to merge into the shell.

ITHKU is a special purpose acquisition company (SPAC). For the SPAC model to work, investors essentially are asked to behave as limited partners in venture funds, as both groups put in money before knowing exactly where the dollars are going.

That means trusting the folks making the decisions, in this case founders Eric Hecht, Paul Brooke and John Glazer. Hecht, who is president and CFO of ITHKU, previously was a sellside analyst at Merrill Lynch. Brooke is a venture partner at MPM Capital and formerly was global head of healthcare research and strategy at Morgan Stanley. Glazer is managing director of ATP Management and formerly was a principal at CSFB Private Equity. In addition to his duties at ITHKU, Hecht is CEO of specialty pharma play Potomac Pharma.

In its IPO, ITHKU raised $53 million through the sale of 8.8 million units at $6. Each unit consists of a share and two warrants, both of the latter exercisable at $5. The $42.4 million in net proceeds, or $5.30 a share, sits in a trust account. If the company doesn't merge within 18 months, ITHKU will dissolve and the money will be paid back. Thus, the potential downside if nothing happens is a loss per share of $0.70, or 12%.

Hecht said ITHKU is looking for a private healthcare company valued at $40-$500 million. "Our preference is on the product side of the healthcare space," he told Ebb & Flow. "Within that area, we'd look at more mature opportunities such as a product with data behind it. We're not going to do an early stage deal or a deal for a preclinical compound."

Any merger requires stockholder approval, so investors do have a say in the outcome.

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