Australian software firm poised to swoop on ailing iSoft

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IBA Health, an Australian software group, is interested in buying its troubled UK rival iSoft, but analysts worried that IBA has no experience working within the programme to upgrade the National Health Service's IT infrastructure.

ISoft is the largest software supplier to the ailing scheme and has suffered from significant delays to the deployment of its systems within hospitals over the past two years. David Toms, an analyst at Numis Securities, said: "I am not convinced by a not particularly large Australian company buying iSoft, given the complexity of the problems it faces."

IBA is preparing an all-share offer to buy iSoft and has also held talks with its banks to raise funds to refinance the British company's debt and provide working capital.

Mr Toms said IBA faced raising "a huge amount of money" for a fundraising on the Australian market as it could be looking at paying £150m for iSoft's equity and about £60m to cover iSoft's debt.

IBA's shares fell more than 6 per cent after it confirmed it was in talks with iSoft, valuing Australia's largest healthcare software developer at about £210m. ISoft's value increased to £114m after its shares surged more than 10 per cent.

With debt repayments rising in March and no cash coming into the business, John Weston, iSoft's chairman, has been searching for a saviour to alleviate its funding needs. The rival bidder McKesson has abandoned the deal after talks with CSC, a key client of iSoft within the NHS upgrade, broke down over contract terms. The private-equity company General Atlantic has yet to exit talks to buy iSoft but negotiations have stalled, according to reports.

Ironically, it was IBA that threw a spanner into the works when iSoft merged with Torex in 2003. IBA had sold its UK-specific patient administration system to Torex that year and had signed an agreement for Torex to act as its exclusive distributor in Europe. IBA challenged the OFT's clearance of the merger between iSoft and Torex by complaining to the Competition Appeals Tribunal. The deal was cleared in 2004 after iSoft agreed to a small disposal.

IBA also initiated legal proceedings against Chris Moore, the chairman of Torex, in 2003. It accused Mr Moore of breaching fiduciary duty by not serving the interests of the IBA's shareholders when he was a member of its board as he was negotiating a merger with iSoft at the time and had access to confidential IBA information.