CompuGroup chairman Frank Gotthardt said: "ISoft would have been an excellent complement to our international business activities, but CompuGroup does not intend to enter into a contest that would lead to prices and risks that are unreasonable."
CompuGroup has reserved the right to increase its offer if a third party, other than IBA, announces a competing offer for the UK firm.
ISoft said in a statement that IBA's cash offer represents superior value for shareholders and that it has therefore withdrawn its recommendation of the CompuGroup offer.
The news follows iSoft's announcement last week that it was planning to hold an auction for the company had the "competitive situation" continued to exist between IBA and CompuGroup.
IBA increased its offer to 69p per share (or 1.65 new IBA shares) last week after an Australian private equity firm, Allco Equity Partners, agreed to invest up to £122m in IBA should the deal go ahead.
IBA has already acquired a 25.6 per cent stake in iSoft from existing shareholders.
Tola Sargeant, senior analyst at Ovum, said: "After the distraction of a bid from CompuGroup and the promised spectacle of an auction for iSoft, we are almost back to where we started. Today, IBA once again looks set to be the new home of iSoft.
"We stand by our view that CompuGroup would have been a safer pair of hands for iSoft than IBA, which has a turnover of only about £30m and very little M &A experience.
"But we think that CompuGroup is sensible not to get into a bidding war for troubled iSoft. That said, given the number of twists and turns that we have already seen in the iSoft saga, we would not rule out yet another third-party bid for the company."
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