iSoft says takeover talks “well advanced”

iSoft announced late on Friday that it is in "well advanced" takeover talks with "several parties", and expects to be able to make a statement soon.

The company responsible for delivering new software systems to 60% of the English NHS said that discussions with potential buyers had taken longer than expected, due to concerns over its role in the National Programme for IT (NPfIT).

iSoft put itself up for sale six months ago following a series of profit warnings and major delays to the delivery of its Lorenzo software, the system it was first contracted to deliver to the NHS from 2004 and now not due until 2008.

"Discussions are well advanced with several parties, both trade and private equity, and the company will make a statement about the outcome as soon as is appropriate," said iSoft. The company said the discussions included parties "acquiring iSoft or taking a significant stake in the company."

Australia’s IBA Healthcare, made clear last week that it remains extremely interested in the acquisition of iSoft. IBA is far smaller than iSoft in terms of both sales, installations and staff numbers, but its current market capitalisation of £178m outstrips iSoft’s current capitalisation of £83 million – almost 90% down from its 2005 peak.

Having first expressed its interest in February, IBA chairman and CEO, Gary Cohen, said on 27 April: "We’ve continued to engage with iSoft. The board of iSoft is looking to be able to announce its position within the next few weeks. As you’d appreciate there are a number of issues we’re keen to resolve and ensure we’re happy with the outcome before we progress this matter."

Cohen said the combination of IBA and iSoft "will create the world’s fourth largest health IT company."

Other potential bidders linked to a possible iSoft acquisition have included McKesson – but in February the Times newspaper reported that the firm had dropped out of the bidding due to unspecified contract conditions.

The IBA CEO said the deal would only go ahead if it would be significantly "earnings enhancing", but made clear he thought iSoft had turned the corner. "The past difficulties of iSoft we believe are behind it and the progress the business has made in the past 12 months will be further addressed by the revenue and cost synergies that result from our complementary footprints."

ABN Amro has been engaged to assist IBA Health with the transaction and its financing.

Addressing questions of how IBA, with a much lower turnover, would fund an acquisition Cohen said: "What we can say is that iSoft’s core business generates a large amount of cash on a recurring basis that would support an appropriately geared balance sheet."

He added: "The problem iSoft got into was that the prior management sold a lot of this revenue forward under contract financing – so the company is currently cash constrained whilst that contract financing unwinds."

Two week’s ago a report by the House of Commons Public Accounts Committee PAC report expressed concern about the very heavy reliance of the NHS IT programme on iSoft. "We are concerned in particular that iSoft’s flagship software product, ‘Lorenzo’ – on which three fifths of the programme depends – is not yet available despite statements from the company in its 2005 annual report that the product was available from early 2004."

iSoft says that it is now making good progress on the late-running Lorenzo product, the first release pf which it says will be delivered to Computer Sciences Corporation early in 2008, with deliveries to the NHS taking place some time later. CSC is the local service provider for three of the five regions of the NHS IT programme, responsible for managing and installing the Lorenzo product.

iSoft says that improved performance and cost cutting mean that the company now has "sufficient headroom to continue operations as normal until 14 November 2007 when its existing banking facilities are due for renewal."