CompuGroup out of iSoft bidding battle

German software firm CompuGroup today announced that it will not increase its bid for iSoft, meaning the NHS IT supplier looks likely to be bought by IBA Health for £166.3 million.

Australia's IBA first bid £140 million for troubled iSoft in June, but CompuGroup topped with an offer of £160 million last month, which was subsequently beaten by a 4.5 per cent premium by IBA last week.

"iSoft would have been an excellent complement to our international business activities, but CompuGroup does not intend to enter into a contest that would lead to prices and risks that are unreasonable. This would not create value for our shareholders," CompuGroup chairman Frank Gotthardt said in a statement.

CompuGroup added that it reserved the right to increase the offer if a third party other than IBA stepped into the bidding.

Following CompuGroup's announcement, iSoft withdrew its recommendation for the German firm's earlier offer, and said it intends to recommend IBA's offer. An auction proposed last week will not go forward.

Gary Cohen, executive chairman of IBA, said that CompuGroup's decision meant his firm's offer was the best on the table. "We would expect the iSoft board to now recommend our offer," he said in a statement. "This brings the current competitive situation that has existed to an end. We now look forward to completing our offer over the next few weeks."

Ovum senior analyst Tola Sargeant said CompuGroup's decision was the right one, but iSoft would have been better off with the German firm. "We stand by our view that CompuGroup would have been a safer pair of hands for iSoft than IBA, which has a turnover of only about £30m and very little M&A experience," Sargeant said in a statement. "But we think that CompuGroup is sensible not to get into a bidding war for troubled iSoft. That said, given the number of twists and turns that we've already seen in the iSoft saga, we wouldn't rule out yet another third party bid for the company."

Sargeant added: "While that is good news for iSoft shareholders, it is not quite as good news as the auction that had been proposed, which led iSoft's shares to climb to a 12-month high of 73 pence yesterday. This morning iSoft's shares are, unsurprisingly, back to 69 pence."

Although thwarted with its bid for iSoft, CompuGroup said it would continue to look for acquisitions. "CompuGroup will continue to pursue actively its strategy of opening up attractive new national markets by acquiring well-established software providers with strong customer bases and brands," said Gotthardt. "The double strategy of acquisition-powered and organic growth is the key to our success."

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