Article from: The Australian FOR four years after the tech...

Article from: The Australian
FOR four years after the tech wreck, which slashed the share price of medical software company IBA Health, chairman Gary Cohen was a finance sector pariah.

"My reputation was at stake," Cohen says. "I felt responsible for 5000 shareholders who had put their trust in me."

IBA Health had raised $68 million in one of the biggest tech floats in March 2000. But by June the share price had tanked from $2 to 70c, then over the next 12 months fell to 9c. Market capitalisation skidded from $300 million to $30 million.

"I had angry shareholders who had dropped a bundle and wanted their money back," says Cohen.

For four long years, he felt in the wilderness -- shunned by the financial community.

"Those were very difficult days," Cohen says. "There was enormous pressure on the board to make changes or sell the company. My reputation was severely dented. It took us years to rebuild our credibility."

As it turned out, the core board members at the outset are still on IBA's board today and, according to Cohen, have come out stronger, bigger and wiser.

A lawyer by training, Cohen was a principal partner alongside David Coe at the collapsed investment firm Allco Finance Group before leaving in 2001 to join his computer geek brother, Brian, and work full-time at IBA.

"With hindsight, perhaps it was too early to list the company in 2000," he says. "We listed on a Friday and on the following Monday, the bubble burst in New York, which knocked the wind off our sails.

"It was a double hit for IBA. At that time it was especially difficult for a health tech company to raise funds but we managed to raise $68 million, which was quite a significant sum.

"When the stock plummeted, a lot of people lost money and I thought we faced financial oblivion."

A major sponsor of IBA's float was Allco, although Cohen bought out Allco's 15 per cent interest in 2002.

Fast forward to 2005, and the Cohen brothers had managed to rebuild the company, strengthen its management team and restore its credibility.

IBA's market value had risen to an estimated $500 million, 600 people were working in back office operations in Bangalore, India, and it had grown to include markets in Southeast Asia, the Middle East and New Zealand.

With the company on an even keel, Gary Cohen was on the prowl again, looking for acquisitions to build IBA into a global player.

Within a year he had cast his acquisitive eyes on the troubled but attractive British rival, iSoft, which had contracts with Britain's National Health Service and international business operations spanning Germany, Spain and the Netherlands.

It turned out to be a long battle.

"ISoft was six times our size and had previously tried to take over us.

"When I first met the chairman of iSoft in London, IBA's share price was a mere 20c and iSoft was worth $400 million. The chairman derisively told me I was waiting to be a slingshot -- meaning I had to go backwards first before moving forward.

"At its peak, iSoft was worth $3 billion but it fell to earth, to be trading around $300 million to $400 million."

Cohen thought iSoft had taken on too much debt, spent too much money on the business and had not increased revenue fast enough.

"It had lost 90 per cent of shareholder value and its management team and we ended up as the underdog bidder -- the pissy little Australian company -- wanting to take over a British institution.

"They did not treat us seriously. I guess there was a bit of colonialism involved. They had hoped an American company would take them over.

"Instead, I came back with a slingshot and we took it over."

But not without a fight first from iSoft. Just when Cohen thought he had the company, Germany's Compugroup came in with a last-minute cash bid. "We were left like a shag on a rock," says Cohen.

At the same time, Robert Moran, managing director of Allco Equity Partners, rang Cohen and suggested that AEP assist IBA with short-term funding in return for a 30 per cent interest in the combined IBA/iSoft group.

"This turned out to be the turning point for IBA."

IBA's scrip bid for iSoft was converted into a cash bid and in October 2007, Cohen acquired iSoft for $800 million, making IBA one of the world's biggest medical software providers.

Cohen says the takeover of iSoft was difficult and protracted but key shareholders maintained their backing.

"We were confident that we knew what we were doing. Now people trust us as a management team. We have surrounded ourselves with the right team of managers with the right skills set.

"It has taken us nine years. Previously IBA was seen as a small company with no chance of survival. Now we are a safe bet -- we have come full circle.

"It took us less than six months to integrate iSoft and we have managed to extract the synergies with cutbacks of the more expensive roles which were duplicated."

With the iSoft takeover, IBA occupies a unique global position in the healthcare technology market, with 4300 employees across 36 countries, focused on IT solutions to improve the health delivery capabilities of 13,000 customers.

The company is pioneering Lorenzo, the next generation of healthcare IT products built around the needs of patients. IBA is in partnership with the NHS in Britain and University Hospital Aachen in Germany to ensure that Lorenzo forms the backbone of information transfer in any healthcare system.

"It's pretty amazing," says Cohen, "when you've had a near-death experience.

"But now we are in the business of not taking unnecessary risks. We do not want to go through hell again.

"Our experience has shaped us because you can get carried away when things are going well," Cohen says.

Last month IBA went to the market to successfully raise $124 million in a two-for-seven entitlement offer at 0.55c a share.

Cohen says the company decided to adopt a more prudent strategy when shareholders voiced concern about the level of debt on its balance sheet.

"In today's current climate, debt is a four-letter word and investors have become debt-averse," he says.

"So it's better to ensure that our shareholders are better protected with low debt levels."

The equity raising has enabled IBA to retire debt and reduce its gearing from 45 per cent to a more conservative 30 per cent.

AEP had lent IBA about $60 million to help fund the iSoft takeover. With the capital raising IBA has now returned $60 million to AEP and retired senior debt facilities of between $30 million and $40 million. AEP agreed to take up its full entitlement under the offer which was equivalent to $32 million.

With the capital raising, the Cohen brothers' 10 per cent stake in IBA has been diluted to about 7 per cent.

Cohen says that in the medical software sector, the company is not affected by the global downturn.

"This puts IBA in a strong capital position to benefit from the investment in health IT.

"The outlook for IBA is robust," Cohen says.

IBA shares were steady yesterday at 63.5c.