Healthcare provider IBA Health has raised its offer for troubled NHS software supplier iSoft from £142m to £166.3m, starting a bidding war with rival CompuGroup.

IBA Health had its initial offer approved by shareholders almost two months ago, but iSoft directors advised shareholders a month later to reject the takeover bid in favour of a surprise £160m offer from German e-health firm Compugroup.

CompuGroup planned to sell on the part of iSoft’s business working on the £12bn National Programme for NHS IT (NPfIT) to Computer Sciences Corporation (CSC), which is delivering 60 per cent of the programme.

iSoft’s Lorenzo software is a critical part of the NPfIT but has been delayed several times. The delays were cited as a factor in consulting giant Accenture’s decision to abandon its NHS contracts last year.

iSoft said it is considering the new bid from IBA and will respond in due course.

‘The revised offer will enable iSoft shareholders to choose whether to accept cash or to accept IBA shares and benefit from the expected growth of the combined group,’ said IBA Health executive chairman Gary Cohen.

‘This merger of two leading healthcare IT companies will create one of the largest providers of health IT solutions in the regions from Europe through to Australasia.’

The new deal includes a cash option, whereas IBA Health’s previous offer was an all-share bid, says Ovum analyst Tola Sargeant.

‘(But) I still think that CompuGroup would be a better home for iSoft than IBA,' she said. 'The deal that CSC made with CompuGroup to take over the development of Lorenzo for the NHS provides a more secure future for the core NHS application than IBA would.

‘But we will have to wait and see what iSoft’s Board decide and whether any other bids will follow IBA’s.’