ISoft to buy rival Northgate for £33m cash as profits doubles

The Government's decision to boost spending on the National Health Service helped iSoft lift annual profits, the software group said yesterday as it announced the purchase of another healthcare business.

ISoft, which supplies software for hospitals and healthcare organisations, said it would pay its rival Northgate Information Solutions £33m in cash for the business, sending the shares of both companies sharply higher.

Despite hardship faced by other software players, iSoft said its outlook remained "extremely favourable" as it stands to gain from the Labour government's plans to invest £4bn in new IT systems by 2005 to link up local doctors, hospitals, community care and social services.

"We are in the right business at the right time," Patrick Cryne, iSoft's chief executive, said. "We are tracking strong growth in the healthcare markets that are going through modernisation."

The healthcare market is one of few areas that is still making money for software makers as the others suffer from dwindling demand as corporate customers tighten their belts to weather the economic downturn.

ISoft's pre-tax profit before amortisation of goodwill more than doubled to £15.4m in the year ended April 30, above analysts' forecasts, from £7.2m a year ago. Turnover was £60.1m, up 93 per cent.

Shares in iSoft, which floated on the London Stock Exchange in July 2000, closed up 6.5 per cent at 253p, while Northgate gained 19.6 per cent to 27.5p. ISoft has outperformed the software and computer services index by 150 per cent in the past year.

"Their numbers are above our forecasts across the board," Antony Stokes, an analyst at Teather & Greenwood, said.

Analysts said the Government's commitment to increase spending on the NHS was likely to lead to further demand for the group's healthcare information systems in the future.

The company also has operations in Ireland, New Zealand, Australia, Scandinavia and Hong Kong, where demand for healthcare IT systems is growing.

Mr Cryne said the acquisition, which is expected to be completed by the end of July, would be earnings enhancing before goodwill in the year ending April 2003.

"The purchase will increase the scale of our business by giving us a larger customer base," he said.

Teather's Mr Stokes said iSoft paid full price for the business, which has stagnant revenues, but it was the right move in the long term. Northgate's health business showed no turnover growth in the year ended April at £10.6m.

ISoft, whose customers include healthcare organisations such as Birmingham City Hospital NHS Trust, the Great Ormond Street Hospital for Children and Nuffield Hospitals, said it intends to finance the deal with a new five-year term bank loan.